By Efforts to score political points over the recent increase in electricity prices have not gone unnoticed. While it’s true that the common person has been hit hard by these higher rates, it’s essential to understand the reasons behind this increase.
Few people are aware that electricity prices are largely determined by two key factors: the cost of fuel and the supply and exchange rate of foreign currencies needed for fuel imports.
Currently, Pakistan heavily relies on imported fuels like furnace oil, diesel, and coal for power generation. Consequently, fluctuations in the exchange rate of the US dollar can’t be ignored. Additionally, Independent Power Producers (IPPs) are paid in dollars.
In relation to the dollar exchange rate, Pakistan made an agreement with the International Monetary Fund (IMF) not to artificially control it, leaving it to be determined by the open market.
The power regulator has approved the Power Purchase Price (PPP) for distribution companies (Discos) for the fiscal year 2024. It’s worth noting that this PPP is 14 percent higher in absolute terms compared to the previous year, putting the national average PPP (excluding K-Electric) at Rs22.95 per unit. This might seem only slightly higher than the previous year’s Rs22.28 per unit, but the calculation has changed, as this year’s PPP is based on generated units rather than units sold, unlike the previous year.
The chairman of the Businessmen Panel (BMP) pointed out that government inefficiency, poor planning, and financial difficulties have compounded the problems faced by businesses dealing with unscheduled power outages nationwide. Furthermore, these businesses are already burdened with high electricity bills, including surcharges and taxes, which can go up to Rs50 per unit.
He emphasized that major industrial cities across the country are grappling with unannounced power cuts, highlighting the need for immediate rectification of technical issues.
When it comes to electricity consumption, it’s not widely known that 75% of electricity is used by domestic consumers, while businesses rely heavily on electricity for various operations.
Some experts suggest that privatizing electricity distribution companies (Discos) is a viable solution. They point to the example of PTCL (Pakistan Telecommunication Company Limited) as a success story in this regard. Privatization in the power sector could potentially create a competitive market environment, benefiting electricity consumers in many ways and promoting self-sufficiency in the sector.
