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CWA # 1075, 2 September 2023
PR Commentary
Pakistan grapples with soaring electricity bills and free riders

  Dhriti Mukherjee

The electricity bill crisis
On 4 September, Dawn reported on the problem of inflated electricity bills in Pakistan, stating that the free rider problem has resurfaced and resulted in mass public discontent. As the Pakistan Bureau of Statistics (PBS) reveals, headline inflation reached 27.4 per cent last month, with food inflation ominously exceeding 38 per cent. This is amid what the interim finance minister has described as a “worse than anticipated” economic situation, which is further highlighted by inflation, depreciation of the rupee, and recent hikes in petrol prices. It has elicited public protest via shutting down shops and signs that denounced the “"the unreasonable increase in electricity bills and taxes.” Scepticism persists regarding the accuracy of the data released by the PBS, with many contending that they fail to capture the actual ground reality.
 
The practice of providing free electricity in Pakistan has resulted in a substantial financial burden on both state-owned entities in the power sector and government departments. According to a former CEO of a power distribution company Disco, “No one is thinking about the main issues bringing consumers under immense financial stress due to inflated bills.” He emphasized the relative insignificance of the cost of free electricity units for power sector employees alone compared to the enormous capacity payments, projected to reach PKR two trillion by the end of the year. The official also highlighted that technical and commercial losses, along with various taxes, have significantly contributed to the surge in per-unit electricity rates. Additionally, approximately 120,000 employees of state-owned organizations receive electricity based on their pay scales, with the budget for free units included in the annual budgets of these organizations.
 
Aside from the main issue of the ‘civilians unrest against the Power Bill,’ the topic of power sector employees and certain government officials receiving “free electricity” is gaining traction. An absence of transparent records makes the task of determining the amount allocated difficult. Amid this upheaval, the caretaker government under Prime Minister Anwaarul Haq Kakar has attributed the surging electricity prices to the stringent conditions of the USD three billion bailout agreement forged with the International Monetary Fund (IMF). Having earlier promised relief to power consumer over their bills, Kakar has now termed the situation as a “non- issue,” implying that the concerns of these individuals would not be addressed. This has further fuelled public outrage, as citizens grapple with soaring costs amid an environment fraught with inflation.
 
Subsequently, Kakar has described the protests to be politically motivated, based on the actions by some parties with reference to the inflated bills. For instance, on 03 September, the Jamaat-i-Islami (JI) party stated that it would take the matter of hiked bills up with the Supreme Court. It holds the view that the agreements made by past governments with independent power producers (IPPs) are at fault. As it upped the national average tariff by PKR 5 per unit, JI emir Sirajul Haq successfully lead protests in the provincial capitals against this issue, stating that the members of the government who had signed deals with the IPPs “betrayed the nation and committed injustice.” The JI has refused to “accept those agreements which past governments made,” and intends to take it up with the Supreme Court, along with the hike in petrol prices. These protests and statements resulted in an FIR being filed against the JI on account of interfering with government machinery, road blockades, damaging government property, and forcibly closing shops.
 
A burden on the public
The burden of governance failures, including mismanagement of the power sector and a lack of reform, has fallen squarely on the shoulders of the Pakistani public. Trapped due to the IMF’s constraints, Kakar resorted to urging citizens to settle their bills, citing limited government options. Furthermore, consumers were set to shell out PKR 1.3 trillion in capacity payments directed to idle power plants in the ongoing financial year.
 
40 to 50 per cent of electricity bills are linked to taxes imposed by the government, exclusive of a tariff rationalization surcharge and a financial surcharge. These costs have been translated into increased rates from power distribution companies, leading to mass outcry. The caretaker government has tried to reassure the public by saying that since “markets are psychological,” economic and financial conditions will improve. However, the former chairman of Board of Investment Haroon Sharif, has expressed shock towards “a non-political government” placing blame on “the IMF for not being able to provide relief to poor.” He stated that “perks and privileges and other wasteful expenditure can be frozen” given that this is an economic “emergency.” The frustration of the public has been additionally heightened due to the stark inequity in the system, with certain sectors exempt from additional electricity taxes while some categories of state officials enjoy free electricity. This glaring policy imbalance only serves to privilege the elite at the expense of the general populace.
 
Political pressure and election uncertainty
Simultaneously, Pakistan faces mounting political pressure, particularly regarding the timeline for the upcoming general elections. The ‘balancing act between the Constitution and the ECP’ that is currently ongoing has led to concerns about potential delays. This has sparked protests from several political parties, demanding adherence to the 90-day timeline. A legal battle has ensued, with petitions filed in the Supreme Court challenging the ECP's decision.
 
Shehbaz Sharif on the economic turmoil over the electricity bills states,“unless they give a date of election and spell out priorities, things are going to get worse, unfortunately.” The caretaker government is currently trying to pursue the same policies as the previous government, and during inception, had vowed to meet the IMF requirements. Political experts have stated that even if it wanted to subsidise the bills, it “has nothing” to borrow from. Thus, its hands are tied.
 
The economic fallout
The hike in prices and the lack of electricity have impacted business and industrial sectors as well. Engineering firms in particular have lost out on their competitiveness due to challenges in efficiency and achieving goals, creating a shortage. 95 per cent of firms have reportedly had no access to finance, and 78 per cent companies have also been experiencing operational inefficiency. The confluence of the crises mentioned above present a significant threat to Pakistan’s economic future. The uncertainty surrounding the elections has already led to instability in the capital market, discouraged investments, and could exacerbate capital flight.
 
References
Khalid Hasnain, “Free electricity quotas merely tip of iceberg,” Dawn, 4 September 2023;
“JI to move SC against deals with IPPs,” Dawn, 4 September 2023;
Khaleeq Kiana, “Electricity issues cast dim light on engineering sector,” Dawn, 4 September 2023;
Nasir Jamal, “Paying for the free riders of electricity,” Dawn, 4 September 2023;
Maleeha Lodhi, “Power failure,” Dawn, 4 September 2023;
Zafar Bhutta & Rizwan Shehzad, “PM caught between a rock and a hard place,” The Express Tribune, 4 September 2023;

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