Despite poorly planned generation and transmission, stranded generation capacity, high capacity payments, technical and commercial losses, theft and under-recovery, electricity can be made available to industry and other consumers at internationally competitive prices without any subsidy from the government.

Paradoxically, a complex web of cross subsidies to prop up the Uniform National Tariff Policy distorts prices and destroys demand. It has prevented Pakistan’s cities and regions from ever capitalizing on their comparative advantages, stifled local investment and competition, and is a major hindrance to energy sector liberalization and sustained economic growth.

The uniform national tariff is the principal reason behind unsustainability of the power and gas sectors. It dictates that all power consumers across the country — within the same consumer category—will pay the same price for electricity or gas regardless of their region or the distribution company they are being served by.

Since geography is the single most important determinant of energy endowments, sustaining this regime masks regional comparative advantages and requires financial transfers to regions with higher costs, either in the form of a direct subsidy from the government or through transfers from regions with lower costs.

The system is sustained through a complex system of inter-consumer and inter-DISCO cross subsidies that impose disproportionate financial burdens on “good” consumers and regions to pay for the shortfall from subsidised consumers and loss-making regions, inhibiting demand for grid electricity due to highly distorted prices — the situation being similar in gas.

With a combined circular debt exceeding Rs 5 trillion — which keeps spiraling despite assurances to the contrary — and an economy constrained by repeated energy crises, the power and gas sectors need urgent course correction. However, progress on bringing down energy costs and stimulating grid demand has become stagnant at best, as any tangible improvement requires a radical overhauling of the system whereas the Government’s focus remains only on balancing the books.

Take for example the recently celebrated sale of scrap power plants, later revealed to only have shifted from the power ministry to ministry of defence’s books, not off of the GoP’s books, or the “reduction” in power sector circular debt through cheaper refinancing—the debt is still there, to be recovered from the same consumers through the same debt servicing surcharge, only moved from the Power Holding Company’s to CPPA-G’s books.

Meanwhile, measures that would lead to tangible improvements in the country’s energy sector dynamics fall prey to the same cross subsidies. CTBCM, for example, is moving ahead with a wheeling charge of Rs 12.55/kWh (plus bid price). This includes Rs 1.45 on account of the Use of System Charge, Rs 2.34/kWh distribution margin and Rs 2.06/kWh in losses, which come out to Rs 5.85/kWh or 2 cents/kWh.........

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