EDITORIAL: Wrong practice / No tariff hike before reforms

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    NEA_BuldingThe Nepal Electricity Authority (NEA) is keen to increase the power tariffs. Only one and a half years ago they were increased by twenty per cent. A state-owned monopoly, NEA has been piling up huge losses year after year despite the fact that Nepal’s electricity rates are considered the highest in South Asia. What is more, the NEA move comes without fulfilling the commitments it had made while increasing the electricity charges last time. At that time, NEA had pledged to cut power outages, reduce power leakages, trim administrative expenditure, and not to levy demand charges during load-shedding hours. The fourth commitment has been made all the more obligatory by a Supreme Court order to that effect. There is a separate commission entrusted with the task of assessing the need to revise power tariffs, and its recommendation is necessary for any tariff increases. Some time ago, NEA had proposed to the commission for another twenty per cent hike in power tariffs because, according to it, it had lost more than four and a half billion rupees in a year by selling electricity cheaper than the price it had paid to purchase electricity.

    Since the last tariff hike, NEA has not been able to cut load-shedding hours, administrative expenditure, leakages, or waive demand charges during the no-power hours. The commission had also directed NEA to cut the free electricity wattage enjoyed by NEA employees. In the commission, the private sector is represented by a member. During the last increase, the Federation of Nepal Chambers of Commerce and Industry (FNCCI) had also agreed to the tariff increases along with the commitments made by NEA. What stand FNCCI will take this time around remains to be seen, but it will probably be hard put to go along with the proposed increases without other commensurate NEA measures. The government stands to benefit doubly from any price increases of such products and services of vital necessity like oil and electricity. The government provides loans to NEA at prevailing rates of interest, but it does not think of lowering interest rates to relieve consumers somewhat, just in the way it is unwilling to cut taxes on petroleum products, howsoever much the prices may be increased on them.

    State-owned undertakings, including public utilities, have always passed the financial burden caused by their profligate ways on to consumers. That is downright wrong. For something the government and the managements of those undertakings are to blame, and consumers must not be punished time and again. According to an estimate, NEA loses more than six billion rupees yearly through power leakages alone, which exceeds its annual losses by far. This means that the government and NEA have to do a lot before they can move to raise power tariffs. Public undertakings have not improved their performances despite the pledges by successive governments to that effect and despite their occasional practice of selecting the chief executives of public enterprises through free competition. Therefore, the government and NEA should first fulfil their part of commitments, at least to a significant extent. Any question of price hikes should not be entertained before then.

    Source : The Himalayan Times

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    No tariff hike before reforms

    Raising price of service or product is not easy for any service provider or manufacturer. One has to justify the decision to raise price of good or service one provides. Quality of service or product, cost of production, managerial expenses and consumption capacity of consumers are important factors for price determination. Increasing price by ignoring these issues is deemed to be against the principle of free market economy, and becomes an example of administrative autocracy. The dissatisfaction and ire arising out of that do not benefit both the service provider/manufacturer and consumers. This obstructs the natural growth of the firm and can even invite unnecessary conflict.

    It is natural for the stakeholders to express concern when the Nepal Electricity Authority (NEA), that has monopoly in generation, transmission and distribution of electricity–the irreplaceable commodity of the modern world, is again preparing to raise tariff without fulfilling any commitments made before raising the tariff the last time. NEA had made commitments of reducing load-shedding and leakage, cutting administrative expenses, and not charging demand fees at the time of power cuts while raising the tariff by 20 percent the last time. The attempt to again raise tariff without implementing these commitments is running away from its responsibility by ignoring the prevailing practices. Its attempt to toss away the commitments has not just raised questions about its managerial capacity but has also revealed its autocratic nature. The demand for unbundling of NEA, made in the past, has again become relevant due to this devil-may-care attitude of the government-owned monopolist institution.

    NEA’s loss has again accumulated to around Rs 10 billion even though the government had written-off its accumulated loss of Rs 27.32 billion just two years ago, due to it tendency to procure electricity at a higher rate to sell it at a lower rate, not make efforts to control leakage that hovers around 26 percent, not cut down the lavish facilities bestowed on NEA staffers, and not show interest to cut administrative expenses. That it is moving ahead with the easy way out by raising tariff without making any effort to improve such malpractices shows its bad intention. The policy of recovering the losses incurred due to weaknesses of management from the consumers cannot be termed right at any cost. The tariff rate for those using over 20 units a month was raised, keeping that for those using less than 20 units constant, only one and half years ago.

    NEA must provide convincing answer to the public about the necessity to stress on raising tariff now. NEA must also clarify whether its priority is to control leakage and unnecessary administrative expenditure or increase tariff. It is already late to decide through policies about the future of such institution if it cannot address such aspects of management and consumer rights. The government should also not hesitate to bring the policy issue of unbundling of NEA into public debate if that can lead to implementation of public commitments and ease in supply of electricity.

    Source : Karobar