FOR the past several months, we have repeatedly been told by the prime minister and his cabinet that the government is ‘working hard’ to slash base electricity prices in a big way. For that, the government had also set up a task force, and staffed it with many sector experts, including a former caretaker minister, to ‘engage’ independent power producers, barring the ones that involved Chinese investment, to renegotiate their contracts in order to reduce the burden of capacity price payments on the tariffs. The task force, if we consider what the government has been saying all along, was also to suggest other measures, such as cuts in the myriad taxes on power consumers to substantially bring down electricity prices before the approaching summer months. But, instead of getting a tariff cut, media reports suggest that consumers might be paying an additional surcharge as the cost for the government’s plans to partly liquidate the power sector’s circular debt that has already soared to nearly Rs2.40tr.

The reports say that the government is “in talks” with the banks to obtain a loan from them to reduce the massive power sector debt by Rs1.24tr. The interest costs would be paid by consumers in the shape of a debt-servicing surcharge, the size of which would be determined by the interest rate to be charged by the banks in their monthly bills. With interest rates down by 1,000 bps to 12pc since June, and projected to plunge further in the next several months, the authorities believe they can borrow money at lower rates and make consumers pay it back to lenders through their bills for seven years. If implemented, such a strategy would amount to punishing consumers for the government’s bad policies and the losses being incurred by distribution companies due to their uncontrolled system losses and theft. It seems that the authorities are in a hurry to close the deal with the banks because of the upcoming IMF review of its funding programme. The liquidation of circular debt is indeed crucial for reducing the government’s involvement in the electricity business, moving towards a competitive bilateral contract market, and selling off state-owned power companies. The question is: do the consumers have it in them to bear the cost of the government’s flawed policymaking, and the inefficiencies and corruption of the power distribution firms?

Published in Dawn, February 25th, 2025