Opinion poll (Businessage Monthly)

Against Power Tariff Hike

Business leaders disagree with the government logic for the recently announced tariff hike in electricity

The recent hike in electricity tariff was not as hefty as that effected only about a month earlier in petroleum price. Still, country’s business leaders and professionals consider the electricity tariff hike illogical, though they had agreed with the authorities that the earlier hike in petroleum price was unavoidable.

When Nepal Electricity Authority (NEA) announced electricity tariff hike by 25% for industrial uses and 30% for domestic uses, it presented the case as utterly unavoidable. Dr. Bhola Nath Chalise, the Managing Director of NEA, revealed in a press meet that the investment from Asian Development Bank (ADB) in Kali Gandaki ‘A’ hydro-electricity project would have been suspended if the tariff had not been raised. The additional money needed by NEA was to raise the counterpart fund for future ADB assistance. The case was clearly of a monopolist squeezing blood out of consumers - a situation that ADB says it has been trying to teach Nepal to avoid.

How logical is it to charge higher price to the existing consumers to raise funds for financing projects that will benefit the future consumers? Answering this question while participating in an opinion poll on this issue conducted by Business Age, leaders and professionals of Nepal’s business community said it was an illogical argument. While 39% of them said they did not agree with the idea of raising funds in this way, another 44% said they find only partial validity in this logic. According to theories in financial management, funds needed by a company for expansion of its capacity should come either as equity or as loan.

But in case of an inefficient monopolist who cannot raise funds from the capital market due to its low creditability, price rise may be the only easiest alternative. And, this is the reason why NEA and government authorities were terming the tariff increase in electricity as unavoidable.

However hard the authorities may have tried to explain their logic, the business leaders and professionals do not seem to be convinced. A sizeable majority (52%) of the respondents say that the government has not been going logically while allowing price hike in public utilities. The hike came in electricity tariff when the business had just received a blow in the form of the petroleum price hike and were not prepared for another. The petroleum price hike had already hit them very hard, particularly the industries in which the share of petroleum bill is very high. Now this increase in power cost has hit severely those who are heavily dependent on electricity as the source of power in their plants. Even if the hike was inevitable, the government has to see to it that the tariff would not go up so quickly in one public utility after another, opines one respondent.

Though the government has explained that the electricity had to be made costlier because of donor pressures, participants in the opinion poll have opined that it was rather a result of NEA mismanagement. Twenty-two percent say it is entirely the result of NEA mismanagement, while 39% say it is partially so. As NEA’s Managing Director himself has informed on several occasions since the tariff hike was effected, NEA suffers from 15% technical leakage and 7.5% pilferage. Moreover, NEA has Rs. 330 million dues to be realized from the government and Rs. 420 million from municipalities. Reducing leakage and realizing the overdues, NEA would have enough funds to finance additional power plants that it plans to undertake. The only problem is the will and effort of NEA management and the government. Since it is the government itself that is the biggest defaulter in paying NEA, 82% of the respondents have suggested to privatize the electricity sector 100% so that the public would get better services at lower cost.