The tariff charged to consumers here is based on generation mix, structure and transmission cost and distribution losses suffered by each utility and the government firmly admitted that electricity charges in the country were higher than what consumers pay in India, Sri Lanka and Bangladesh. Costly furnace oil led to a significant increase in power tariff. The price of furnace, which was Rs20,604 per metric ton in 2006-07, increased to Rs72,134 in 2013-14.
The cost of electricity in Pakistan is 86 percent higher than Sri Lankan and more than 45 percent higher than India and Bangladesh. Simultaneously the per unit cost of electricity in Pakistan as compared to India (9 cents), China (8.5 cents) and Bangladesh (7.3 cents) is 14 cents. The cost gradually destroys competitiveness of domestically produced goods in international market.
In Pakistan the cheapest source of power generation is hydel, which is not sufficient to meet the continuous increasing demand of electricity in the country. In this context the demand was mostly met through thermal generation. Gas is another cheaper source for power generation but unfortunately it is also not much available to match as per requirement of country’s power system.
The power generation predicted by the National Electric Power Regulatory Authority (Nepra) for the financial year 2013-14 revealed that the share of hydel was 34 percent, furnace 35 percent and gas 23 percent.
The government no doubt had taken care of households falling under the low-income group, but that cost of supply as determined by Nepra was not being passed on to consumers to the fullest extent.
Electricity tariff in Pakistan is 11 cents/kWh against 9 cents/kWh in India, 8.5 cents/kWh in China, 7.3 cents/kWh in Bangladesh, 9 cents/kWh in Sri Lanka while 7 cents/kWh in Vietnam. Gas tariff is $8/MMBTU in Pakistan against $4.2/MMBTU in India, less than $6/MMBTU in China, $3/MMBTU in Bangladesh and $4.5/MMBTU in Vietnam.
Beleaguered export sector
The cost of doing business in Pakistan is as high as 10 percent as compared to other regional competitors which has pushed the export sector of Pakistan at a disadvantaged position in the international market. About 20 percent production capacity of industry in the country is hurt due to high cost of doing business.
Duties/taxes/surcharges on exports in Pakistan are more than 5 percent; however these are less than one percent in China, Bangladesh, Sri Lanka, Vietnam and zero percent in India.
Pakistan share in global textile trade dropped from 2.23 percent to 1.5 percent during 2005-2015 as the sector remained uncompetitive in the region with low power supply, high cost of doing business and desired relief in taxes.
Nevertheless, India share increased from 3.5 percent to 5 percent, China from 30 percent to 38 percent, Bangladesh from 1.6 percent to 3.7 percent and Vietnam from 1.12 percent to 3.7 percent.
Record electricity production
Pakistan is offering technology up gradation to 25 percent of looms while all other competitors are providing 100 percent. Minimum wage rate in Pakistan is $135/month against $90 in India, $200 in China, $68 in Bangladesh, $66 in Sri Lanka and $90 in Vietnam.
Hydroelectric power stations of the Pakistan Water and Power Development Authority (Wapda) supplied 33.154 billion units of low-cost electricity in fiscal year 2015-16, which is the highest-ever generation level from this source in the country. It surpassed the previous record of 31.5 billion units achieved in 2014-15.
This additional contribution of hydroelectric power not only helped minimize load-shedding in the country but also brought down electricity tariff.
Apart from increased water releases from Tarbela and Mangla reservoirs, effective operation and consistent maintenance of the hydel stations were the main contributing factors behind the record electricity production.
Hydroelectric power is the cheapest, cleanest and environment-friendly source of energy that plays a strategic role in balancing electricity tariff in the country.
According to data of the Central Power Purchasing Agency about per unit cost of electricity generation from different sources in March 2016, the cost stood at Rs1.94 for hydroelectric power, which was far less than the cost of other sources.
The cost was Rs8.71 per unit for gas, Rs11.41 for residual furnace oil, Rs18.60 for high-speed diesel, Rs8.98 for IPPs, Rs12.13 for coal, Rs7.27 for nuclear, Rs16.37 for wind, Rs11.90 for bagasse, Rs22.03 for solar and Rs10.53 for electricity import from Iran.
Hydroelectric power plants all over the world have average life period of 30 to 35 years, but Wapda says it is still successfully operating its power stations, majority of which are far older than their average life.
Currently, the industrial sector is charged with an average tariff of more than Rs14 per unit, which has higher peak rates and lower off-peak rates. After reduction in the base tariff, all the current rates will lower by an average of Rs3 per unit with an average tariff of around Rs11 per unit.
The government has taken this decision on the demand of industrial sector, as in other competing economies including India, Sri Lanka and Bangladesh the cost of this major input was much lower than in Pakistan.
This huge difference made manufacture of value-added textiles and leather the two prime exports of Pakistan less competitive compared to regional competing countries.
In Pakistan, per unit cost of electricity is 14 cents, 7.3 cents in Bangladesh, 8.5 cents in China and 9 cents in India. Pakistan’s total exports during July-December 2015-16 witnessed a decline of 14.4 percent to $10.322 billion against $12.058 billion in the same period last year.
In these six months, textile exports dipped by 8.93 percent to $6.27 billion against $6.88 billion in the same period last year. During this period, the country has suffered a loss of around Rs60 billion in textile export earnings and approximately 60,000 employees have lost their jobs.
From January to December 2015, Pakistan leather sector registered a decline of 20 percent in its exports, while other countries experienced increase in their exports in the sector, as Chine leather exports up by four percent, India 18 percent and Bangladesh recorded growth of 32 percent in leather exports.
Bangladesh was renowned for low-cost energy in the South Asian region, which had prompted many foreign investors to come here and invest.
In Bangladesh if the government had been serious in rehabilitating inefficient old power plants and built base-load power plants, the tariff would not have increased this much. The higher electricity tariff would discourage foreign investments.
The current reduction in Bangladesh electricity tariff, which is the main input for the value added export oriented products, will help boost exports and make them more attractive to the foreign consumers.