LAHORE: As people stung by the killing proportion of taxes, mainly fuel price adjustment (FPA) charges for the last two months that multiplied cost of electricity, take to the streets, the government seems to be belatedly waking up to the options that it always had but never bothered to exercise.

On Wednesday, Federal Minister for Power Khurram Dastgir announced exemption from FPA for those consuming up to 200 units, claiming benefit to 17 million users at a cost of Rs22 billion to the national exchequer. It came after Prime Minister Shehbaz Sharif had suspended collection of the Fixed Sales Tax on the traders through electricity bills and then ordered an inquiry to ascertain why the tax amount was doubled at the implementation stage and asked the finance minister to sit with traders to prepare new mechanism for collecting this kind of tax.

The sectoral experts, however, point out many more possible mitigating measures and wonder why they were not thought of and taken in the first place. Why did the government wait for protests to gain nationwide momentum to even start

looking for relief options?

“This is a rare combination of mismanagement and incompetence – some call it insensitivity – on the part of energy sector managers,” says a former head of Pakistan Electric Power Company (Pepco), who did not wish to be named due to sensitivity of the issue. In fact, none of serving officers, Dawn spoke to on Wednesday, wanted to be named for the same reasons.

“According to the power sector standard operating procedures (SOPs) agreed with the lenders, the government has to collect FPA for balancing its books. But, book balancing is a yearly exercise, not a monthly one. The government could, and should, have staggered FPA collection: passing a portion of it to relatively lean months. During the last decade, FPA remained negative for years and so was during the Covid crisis. It would certainly drop to half of current amount for July because of drop in world oil prices. It used to be a normal procedure in the ministry to prepare six- to eight-month FPA projections and see how it could be collected, causing minimum discomfiture to consumers. The exercise seems to have been suspended this time,” he thinks.

“Why the highest ever FPA collection was concentrated on two highest consumption months? A simple look at mathematics of slapping and collection of FPA makes it clear the magnitude of what is now turning out to be belatedly realised folly. In May, Rs7.92 per unit FPA was slapped. In June, it went up to Rs9.89 per unit. The actual impact was even higher: in May, FPA came to Rs9.50 per unit and Rs12 per unit in June as roughly 21 per cent taxes are added to the amount. To make it worse, this amount was collected in July and August, when routine consumption spikes to the highest yearly point. One wonders why the sectoral mangers or politicians looking after the sector did not think through and calculate social and political cost of their act.

“Now, after much political maligning and social chaos, the government is waking up to the fallout and taking partial and halfhearted remedial measures which would not work,” he warns.

Advising better realism, Muhammad Ali, a tax consultant from Lahore, says the government should have at least deferred some of the over a dozen taxes which it collects through electricity bills. It has been electricity bills as a vehicle for tax collection but it should have rationalised them due to their disastrous impact, or found some other methods to collect taxes like general sales tax (GST) and fixed taxes.

“It is not to suggest that the government should have foregone them but only to say that better political and social acumen should have prevailed. How could people, already surviving on the fringes of their financial reach, afford to pay the highest FPA, during the highest inflationary period and that too amid increased and new taxes after budget and stalled salaries and income brackets?

“More than rationale of the FPA, it is the manner of collection that has made it worse; it smacks of social insensitivity on the part of energy and finance managers in the country,” Ali regrets.

A former official of the energy ministry, who had been involved in policy preparation, thinks that the government should also decipher the reasons behind the current bind that it finds itself in. “Most of the plants generating electricity are based on foreign fuel which fluctuates due to factors beyond the control of Pakistan. Dollar-rupee parity also contributes to the mayhem. The only option to deal with these fluctuations is long-term purchase agreements, like LNG. Why RLNG was not purchased a few months prior to the crisis? Why we have missed hedging options in case of oil products? This year, hydel generation crest was delayed by two months due to climatic factors and dependence on thermal multiplied – causing the current FPA crisis. One should also have a look into the role of Wapda and the Indus River System Authority (Irsa) whether there was any negligence on their part in restricting dam operation and reducing hydel generation?

“Yet another question is was the Economic Dispatch Order fully followed during the peak thermal generation months? All these answers should be found to avoid the repeat of this crisis which is fast turning into social disaster,” he advises.

Published in Dawn, August 25th, 2022