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Key of National Power Policy is to attract investment

As consumers in the country brace themselves for a an unprecedented 74 percent increase in electricity tariff, Dr Musadik Malik, special assistant to the prime minister on energy sits down with The News to provide clarity on the government’s energy sector strategy.

Q. How would you justify the government’s move to increase the power tariff?

A. The key aim of the recently approved National Power Policy 2013 is to attract local and foreign investments and subsequently expand the country’s power generation capacity with a focus on producing cheap electricity. And investments can only be encouraged if the sector is made attractive and bankable by eliminating all subsidies to prevent circular debt.

Q. Who would you blame for the ‘inevitable’ power tariff increase?

A. I blame the messed up power sector of Pakistan for the high cost of power. A terribly inefficient power transmission and distribution system currently records losses of 23-25 percent due to poor infrastructure, mismanagement, and electricity theft.

The cost of delivering a unit of electricity to the end consumer has been estimated at Rs14.70 by the National Electric Power Regulatory Authority (NEPRA). The inefficiencies are costing taxpayers an additional Rs2.70 per unit over and above the cost of generation which is around Rs12 per unit. The Ministry of Water and Power has estimated the true cost of delivering a unit of electricity to the end consumer at greater than Rs15.60 after taking into account the collection losses and the real losses to the distribution companies.

Even if the system accepts NEPRA’s transmission and distribution loss figure of 16 per cent, theft alone is estimated to be costing the national exchequer over Rs140 billion annually.

The aforementioned inefficiencies, theft, and high cost of generation are resulting in debilitating levels of subsidies and circular debt. Reducing these losses would lead to significant improvement in the bankability and profitability of the sector, and could be used to improve the efficiency of the power system as a whole.

Q. How will this affect the low-income people in the country?

A. The policy shift on the power tariff will minimise or eliminate subsidies for industrial, commercial and bulk consumers, but low-income consumers using around 200 units would be protected from any price escalation.

Those who can pay should pay. The government will continue to protect the interest of those who cannot bear the cost of the rising tariff. Fairness will be ensured by protecting the underprivileged and cross-subsidizing their consumption from the affluent.

Q. What role will the power tariff hike play in the larger scheme of things?

A. The tariff escalation underpins the government’s long-term transformation and sustainability goals in the power sector. Altering the energy mix towards less expensive fuels will lead to generating affordable energy. And to attract investment in the power sector with an aim to achieve a low-cost fuel mix, we are left with no option but to rationalise the electricity tariff. Further, a level-playing field will be created by providing power at comparable prices to all industrial users.

Q. What is the government’s short, medium and long-term power strategy?

The government’s strategy has been prioritised to maximize the impact of the various strategic initiatives. In the short term, we will bring existing capacity online, stop thefts of all sorts, rationalise the tariff, sign performance contracts with power sector entities, and ensure transparency.

In the medium term, we will bring low-cost pipeline projects online and jump start coal and hydel projects on a public-private-partnership basis. Finally, in the long term we will finish large infrastructure hydel projects and retire high-cost energy contracts to ensure that Pakistan moves towards cheap electricity generation.

Clear targets have been set in terms of the demand-supply gap, affordability, efficiency, financial viability and governance of the system. Besides, bridging the demand-supply gap, the cost of power generation would be decreased from present 12c/unit to ~10c/unit by 2017, providing a long lasting relief to consumers.

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