ISLAMABAD: The country’s premier intelligence agency has proposed short- and long-term measures to bring down unbearable electricity bills including waiver of all taxes on consumers using 400 units monthly and diversion of Rs 90 billion from PM discretionary fund for power subsidy.
According to a report of the agency, Pakistan is facing an unprecedented increase in power rates, exacerbated by increasing inflation, and the alarming increase in the rates of electricity has left people facing pressing economic uncertainties and triggered public protests. The agency has prompted the caretaker government to intervene and take action to provide immediate relief.
The agency contended that the urgent demand for immediate relief measures have not only exposed the vulnerabilities within the power sector infrastructure but also pose a significant challenge for interim govt in efficiently managing this escalating crisis.
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The reasons behind higher electricity tariffs are: (i) inadequate transmission and distribution systems, high technical/line losses, and outdated infrastructure lead to added costs and elevated tariffs (max line losses of 38%); (ii) guaranteed capacity payments to power producers’ regardless of actual electricity sold, that significantly contribute to persistent high tariffs in Pakistan; (iii) inefficient billing, collection systems, and government subsidies to certain regions and sectors contribute to revenue shortfalls, leading to tariff hikes to recover costs that in turn are driving up overall electricity prices;(iv) imposition of approximately 33% taxes on electricity in different domains as FBR considers it convenient to collect taxes as part of electricity bills while making no effort to increase direct tax collections. This apart from the higher tariffs, adds to the overall cost burden, further increasing electricity prices for consumers.
The agency has submitted recommendations for immediate relief measures in the shape of reduction in taxes as follows: (i) abolish all taxes for households consuming up to 400 units/month estimated to result in saving of up to Rs 4,000 per household/month; (ii) reduce GST to 10% with no additional taxes for households consuming beyond 400 units/month that will result in saving of around Rs 4,000 per household/month); (iii) engage with the IMF to seek approval for alternative measures that can compensate for the potential loss of revenue resulting from reduced GST on electricity; (iv) for providing relief to the masses, PM’s discretionary fund in PSDP - Rs 90 billion - may be proposed to be diverted for this subsidy/ relief.
It has been recommended that late payment surcharges of 10% can be reduced or eliminated. This will ease the financial burden on consumers who may struggle to pay their bills on time. Another recommendation is regarding comprehensive review of the taxation structure/fees on electricity.
The FBR may be asked to generate revenue by taxing other non-tax sectors like retailers, etc, as increased electricity bills are now negatively affecting production and causing civil unrest. Cross subsidies be paid by the Govt. instead of asking consumers to pay and payment of electricity bills in installments be allowed. This will immediately ease the financial burden on households while ensuring continued access to essential services.
The agency has also submitted the following recommendations as long-term policy measures: (i) Invest in alternative, indigenous and renewable energy sources to reduce reliance on imported fossil fuels. This will help to stabilize energy cost and enhance energy security; (ii) implement measures to reduce technical and non-technical losses in electricity distribution system.
This includes upgrading infrastructure, improving maintenance practices and addressing issues like theft and unauthorized usage;(iii) invest in modernizing the electricity distribution system by incorporating advanced technologies like smart meters, real time monitoring, etc; (iv) Govt. may develop smart grids to optimize energy distribution, minimize losses and improve overall efficiency, which can eventually lead to lesser line losses and cost savings that can be passed on to consumers; (v) Govt should make improvements on the energy-demand side, ie, reduce losses arising from distribution and transmission of electricity through regulating Generation/Distribution Compa-nies; (vi) there is a need for coordination between the federal and provincial governments in sharing losses and subsidies related to the energy sector, including privatisation of Discos.
This could involve revisiting the NFC award to address the challenges faced by the energy sector; (vii) Government may incentivize international investments, ie, encouraging expansion and investments in developing indigenous fuel sources (hydro, Thar coal, shale gas, oil and renewables); (viii) Govt should vigorously keep pursuing separate pipeline projects, ie, Pakistan Stream Gas pipeline (PSGP), Iran-Pakistan (IP) and Turkmenistan-Afghanistan-Pakistan-India (TAP) gas pipeline, etc; and (ix) encourage energy efficiency measures among consumers, which can help reduce electricity consumption and bills. This could involve awareness campaigns and incentives for energy-efficient appliances.
Copyright Business Recorder, 2023