Determining electricity tariff

The domestic electricity policy is only in its draft stage, yet there are conclusions made that it is going to impede the growth of the private sector. It is normal to see and nothing new to hear such views when a group of businessmen are put in a room to discuss government policies.

But with plenty of bills to pay, loans to service, entertainment expenses to be met the prospect of having to shell out more for a necessary utility does not sound good. Bhutanese industries rely on the cheaper electricity for comparative advantage to thrive and when bills are bound to increase, profit margins will be hampered. To the credit of the government, it is a good initiative to not hide the draft and let the concerned group discuss it and provide feedback before finalizing it.

With the policy on domestic electricity tariff, the sector is under the impression that more shops will be closed as electricity becomes dearer. The policy aims to rationalize subsidy and all non-residential low voltage customers will be paying higher. The argument is that subsidy should be on consumption instead of giving it as a kidu to rural households. While this can be debated, it makes sense in charging by the amount consumed. There are different blocks set with different tariff and even rural households will pay if he consumes more than the allotted free quota.

What is worth looking at is how the electricity is determined as we finalize the policy.  Like the private sector representatives argued, the logic to depend on plants with cheapest generation cost to keep the domestic tariff low is irrational. In the country, Chukha is the plant with the cheapest generation cost, but its power is exported at a higher rate than others. This will defeat the whole purpose of revising the export tariff for electricity generated by the Chukha plant.

It does seems unfair when generating companies or utility, for instance, include all the overhead cost, taxes, cost of supply, cost of equity and its investments in determining the tariff and pass it on to customers. In our case with only one generating company and one transmission and distribution company it seem like a monopolistic approach.

The situation could be different if there were several generating and distribution companies.

With a different pricing for the industries, they are questioning why they should pay for the inflated cost. They are aware of how the math is done and are aggrieved.  Their argument of putting a cap on the cost with annual revision does make sense, as it will also provide check and balance on the utility companies too. Where is the fairness when customers have to bear the price for bad investments?

We can see more discourse on Friday and hopefully come to a policy whose benefits will “accrue to the Bhutanese people”.

1 reply
  1. irfan
    irfan says:

    The country has one generation company and one transmission and distribution company. But the nature of the monopoly is not restricted to just that; there is the all important hydro power monopoly to consider. There will be a lean season and generation can’t be uniform through out the peak season as well. Moreover, imports of electricity can be expected during the lean season with so many mega projects under construction.

    Being a monopoly, a regulated pricing mechanism may be demanded. The present method of cost plus pricing is more about mark-up pricing to my understanding. If passing on of certain unwanted cost to the end consumers is not a popular policy, same will be true if the regulator fixes a rate of return. If hydro power export is the core of the economy, it will also control inflation in the economy. It’s always a complicated situation with more hydro projects lined up and huge investments required.

    If we consumers don’t shade our loads, we don’t even like the distribution company shedding its load all the time. In the high voltage segment, industries will find it difficult to survive without regular and reliable power supply. Pricing of electricity usually comes as the secondary blow. Somewhere there is an argument on price cap regulation and that can easily be argued for revenue cap. In whatever way the draft policy get discussed about, we are probably looking at a future where the heavy industries will consider grid connected captive power generation. But prices for electricity in the country is still considerably lower in the entire region and it’s increasing.

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