Prime Minister Shehbaz Sharif has said explicitly what should have been clear for a little while, that the government was going to make an appropriate cut in the electricity tariff soon. The Shehbaz government has in a way based its entire policy on this. It has staked its future on bringing prices down, and in its analysis, inflation is rooted in an excessively high power tariff. The power tariff is blamed for making exports uncompetitive, and lowering them will help boost exports, which in turn is key to boosting employment and generating the kind of foreign exchange needed to service the burgeoning foreign debt. At an Independence Day ceremony in Islamabad, Mr Sharif made these linkages explicitly while announcing the coming relief.
The main source of this relief will be the money saved on capacity charges, which will not have to be paid to the Independent Power Producers whose contracts are not extended. As soon as it became clear to the government that it could take over the older IPPs at once, and that it could start taking over the rest as soon as their contracts ex[ired, it became inevitable that they would be taken over. The government hopes thus it will defuse the bomb the IPPs represent for the finances of the entire power sector, indeed the country. The attractions of solar power are now becoming too great to resist, and the recent launch of a scheme to convert baseline consumers to solar power actually transforms the argument. So far, the argument against solar power has been that it allows the high-end consumer to escape paying for the capacity charges; now the baseline consumer is being involved. It should have become clear by now that the IPPs or capacity charges are merely skirmishes in the main battle, which is between the new power system, which solar power represents along with other renewables, like wind and hydropower, and thermal. The old system has got numerous vested interests, and it should not be expected to give up without a fight. The PM and his government are obliged to side with the more cost effective solution, as they are doing. Just as the shortage of electricity had to be met by the establishment of the IPPs, because it was strangling the economy., the power tariff must be lowered, to prevent it strangling economic growth. The concern shown by the World Bank at the failure to extend contracts must be seen as a last-ditch effort by the oil lobby, and must not stop the government from affording the consumer relief in a way that will help the economy get moving.
