National Electric Power Regulatory Authority (Nepra) has allowed just under 3.50 rupee per unit raise in distribution companies’ (Discos’) tariffs – 1.53 rupees per unit under the December 2020 monthly fuel adjustment charges, in line with the fluctuating international price of fuel as well as the rupee dollar parity at the time of import and 1.95 rupees per unit raise in base tariff justified on account of Nepra’s tariff determination based on 100 percent receivables and lower distribution and transmission losses.

While these justifications have some merit yet ignored are two other factors that account for the failure of Discos to meet the targets set by them and which is within their domain of responsibility. First, Discos exhibit uneven performance with some performing better in terms of collecting receivables than others. Islamabad Electric Supply Corporation (IESCO) has one of the highest receipt of receivables while Sukkur, Peshawar and Lahore Discos are poor performers. Thus one obvious way to deal with the situation is not to penalize IESCO consumers by insisting on uniform tariffs throughout the country or develop an inbuilt mechanism that would allow a good performing Disco to replicate its policies in a poor performing Disco.

And second, while it is Nepra that determines tariff and bears the brunt of the responsibility for a tariff raise on the one hand and the receivables/transmission and distribution losses that it allows on the other yet it is relevant to note that there are considerable taxes levied on electricity - taxes which are as follows: (i) general sales tax at the rate of 17 percent on all consumers; (ii) electricity duty at the rate of 1.5 percent; (iii) finance cost surcharge at the rate of 43 paisa per unit (excluding life line consumers); (iv) Neelum Jhelum surcharge at the rate of 10 paisa per unit (again excluding life line consumers); (v) television fees at the rate of 35 rupees per bill. While critics would no doubt urge the government to reduce taxes on electricity, a major input cost in most productive activities as well as consisting of a significant component of a householders kitchen budget, a demand that is particularly poignant during the pandemic yet it is highly unlikely that the government would accede to this request given the rising budget deficit and its inability to raise revenue by widening the tax net and instead its continued reliance on taxes that are easy to collect.

Inflation, which registered a decline from 7 percent in December 2020 to 5.7 percent in January 2021, as per the Pakistan Bureau of Statistics (PBS), may not show an appreciable increase due to the decision to raise tariffs because its weightage is extremely low – around 6 percent if petroleum and products (whose price has also recently been raised) is added to the mix.

The actual responsibility for a tariff raise therefore rests on several entities and to remedy the situation would require a multi-ministerial committee to assess and evaluate the prevailing issues and begin a process of reforms. The Federal Board of Revenue, under the administrative control of the Ministry of Finance, must shift its inordinate focus on reliance on withholding taxes in the sales tax mode that are easy to collect (simply requiring monitoring by the Board) to widening the tax net to include those who are not filing their returns. Not only is power sector required to begin to improve efficiency with a view to reducing the circular debt currently being serviced through borrowing from the market with the interest payable charged to the hapless consumers, Nepra, the regulator, is also needed to take account of ground realities in its tariff determination and the Discos must be compelled to compete with each other to raise receivables with a reward/penalty system put in place.