Uncollected bills: Government institutions are the biggest deadbeats

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If you thought that an expensive fuel mix, inefficient power plants, and massive theft of electricity were the only problems in the power sector, you would be dead wrong.

There is one final stage of inefficiency: even when the power distribution companies are able to bill the consumer for electricity, there is absolutely no guarantee that they will pay it, because there is absolutely no chance that the power company will cut off the non-payer’s electricity. Why not, one might reasonably be tempted to ask. Because while some of those are influential politicians and industrialists, the majority of unpaid bills belong to the government of Pakistan.

And by government, we mean all kinds. Federal, provincial and local governments and related departments all owe massive amounts of money in unpaid bills. This is somewhat surprising since one would think that the government would pay the bills generated by the companies it owns. But apparently that logical train of thought is beyond the capacity of the civil servants in the finance ministry put in charge of deciding how the government spends its money.

The total amount of unpaid bills in the country stood at approximately Rs386 billion at the close of the fiscal year that ended June 30, 2012. By some strange coincidence, circular debt was only marginally higher than that number at the time. We leave it to your imagination as to what that fact implies.

Of that Rs386 billion, about Rs188 billion, or over 51%, was owed by various government entities. Yes, the government is the single biggest deadbeat in the country. Of the government’s institutions, the single biggest defaulter of electricity bills is the Sindh government, which owed nearly Rs53 billion in unpaid bills at the end of fiscal 2012. And that number does not include the roughly Rs30 billion that the Karachi government, which falls under the purview of the Sindh government, owes to the Karachi Electric Supply Company.

The provincial governments, particularly Sindh’s, argue that the power companies hide the true scale of their transmission and distribution losses by overbilling provincial government departments. There are absolutely no good implications that can be drawn from that statement. Either the allegation is true, in which case the theft problem is even bigger than previously realised, or the allegation is false, in which case the provincial governments are effectively asking for free electricity for themselves at the expense of ordinary consumers.

Unpaid bills are a serious problem in the country and in fiscal 2012, about 14% of the total amount billed to consumers, public and private, went unpaid. Adding that number onto the cost of electricity distribution takes the total cost of electricity to the consumer who does not steal and pays his or her bills on time to about Rs13.89 per kilowatt-hour, using fiscal 2012’s figures.

The consumer, of course, is not actually asked to pay this amount, which then has to be paid in the form of government subsidies, which totalled Rs472 billion in fiscal 2012 and are set to exceed Rs550 billion in fiscal 2013.

The logical conclusion, then, is this: the federal government is paying out subsidies, but not paying its own bills nor making the provincial and local governments do so, despite the fact that they depend on Islamabad for most of their revenue, and despite the fact that not paying its bills only adds to the problem. If that sentence was too complicated to follow, it is because the logic behind the phenomenon it describes is too circular to be understood.

The bottom line, then, is this: the power crisis is caused mostly by theft by ordinary citizens and a combination of spinelessness and stupidity by the government. Fixing the problem will require the elimination of all three.

Published in The Express Tribune, June 3rd, 2013

Farooq Tirmizi

CEO, Elphinstone

Farooq Tirmizi is the founder and CEO of Elphinstone, the financial services firm that operates SmartRupee.

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