ISLAMABAD: The federal government is unlikely to protect poor consumers using up to 300 units monthly due to major reduction in subsidies coupled with the impact of Covid-19, as well as consistent devaluation of the rupee, even if there is no increase in tariff.
This was apprehended by former Secretary Power, Irfan Ali, who was made OSD due to his bold stance on some issues, in a letter to his successor, Omar Rasul.
Irfan Ali, in his letter written last month, argued it would be naive and wrong on the part of policy makers to shift the entire onus of the circular debt on the inefficiencies attributed to the distribution system.
"In the last 18 months a major and concerted effort has taken place in all Discos to reduce losses and theft as a result of which an overall improvement in recoveries and sustained reduction in line losses has taken place. These improvements were shared with the IMF who agreed with the theme and the direction of the effort put in place by the Power Division," he added.
Former Secretary maintained that as a result of these improvements and mutually negotiated agreement between the Power, Finance and IMF teams, a Circular Debt (CD) capping plan was approved and put into action. The plan was based on the assumption that regular quarterly adjustments, fuel price adjustments as well as budgeting and payment of subsidies would be put in place.
The ultimate aim of the circular debt capping plan was a target of gradual reduction of the quarterly flow/increase of circular debt, reducing it by less than Rs 8 billion per month by December 2020. In December 2019, the flow of CD was Rs 12-15 billion per month as compared to Rs 30-35 billion in first two quarters of 2018.
It was at this point in time that the government decided to disallow any further increase in the form of quarterly adjustments of tariff or monthly fuel adjustments, he added.
"We need to remember, at this point, that the increase in cost of electricity was due to major devaluation of the Rupee which had an overriding impact on the capacity costs as well as cost of fuel. Despite what various financial wizards and reform pundits started saying at that stage, laying all the blame on distribution in-efficiencies, the real reason for the price hike was the policy leading to sudden and steep devaluation of Rupee," he continued.
The Power Division submitted an ingenious and well thought out plan to stagger the increase of costs over the next few quarters, but the plan, despite the IMF's readiness to listen to Power Division's suggestions, was not supported or adopted at the Government's level.
"We gave presentations to the ECC, Nepra, the PM and the Cabinet but except for the PM, the others did not give due thought as a result of which stranded costs began to rise and add to the circular debt," said, Irfan Ali,
Up till February 2020, Power Division had sustained a recovery level above 90% against all units billed, when Covid-19 pandemic set in and reduced the recovery levels to 40-50% in the next 3 months. By this time NTDC had increased its transmission capacity to almost 26,000 MW and it was hoped that with increased transmission capacity, the summer months would bring about a major increase in income and recoveries, on the condition that antitheft operations in the field continue.
"Let me also add that these operations are completely dependent on the principles of merit-based placement of human resource and administrative support to the operational staff. Any politicization in postings and leniency towards corruption would unfortunately bring an effective end to what we have tried to achieve," he further stated.
Talking about subsidies, former Secretary said, he has now been informed that against the demand of Rs 266 billion as subsidy, only a sum of Rs. 150 billion has been budgeted.
He pointed out that despite serious limitations, Power Division has been doing its best to ensure that poor classes of consumers are not directly affected by any increase in tariff.
Some major steps/principles that were adopted to ensure that the poor are protected are as follows: (i) our foremost effort over these 22 months was that no price be increased for domestic consumers up to 300 units' consumption. Power Division refused to agree with the IMF proposals till they agreed to the protection of domestic consumers up to 300 units. It was in the 3rd quarter of 2019 when they agreed to recommend an additional subsidy of Rs 56 billion for these consumers. Not only this but small commercial consumers and agricultural tube-wells were also protected through an element of cross subsidy.
Power Division also did not place an additional burden of Rs 146 billion on consumers associated with Net Hydel Profit (NHP) and requested Nepra to stagger that impact.
"I am afraid that with a major reduction in subsidies coupled with the impact of Covid-19, as well as consistent devaluation of the rupee, the power sector would no longer be able to protect poor consumers using up to 300 units even if there is no increase in tariff," he said.
Irfan Ali has suggested to his successor, the following steps for consideration; (i) Finance Division may immediately be requested to rationalize the amount of subsidy in the light of Power Division's letter of June 19, 2020;(ii) protection to domestic consumers up to 300 units needs to be ensured and similarly agricultural subsidy needs to be understood as it relates to food prices and not land holdings. (iii) The plan for staggering of cost as prepared by Abid Lodhi and his team at CPPA-G may be reconsidered and revisited keeping in mind the subsequent impact of Covid-19. The plan also envisaged a reduction in the cost of electricity of industrial consumers to ensure increase in industrial demand, keeping in mind our enhanced transmission capability (iii) Based on facts, negotiations with IMF would be essential for revising the circular debt capping plan. It must not be forgotten that blind increase in cost would result in social upheaval and a steep increase in power theft; (iv) Field operations need to be continued unabated which is only possible if merit and support are continued and any spate of politically motivated transfers and postings is resisted steadfastly. It is also important that corrupt elements that were identified and proceeded against are not dealt with leniently.
Insiders, however, told Business Recorder that many of the measures/actions taken have been set aside. Ban on transfers and postings has also been lifted under pressure from political figures who did not succeed during the time of former Secretary.
Copyright Business Recorder, 2020