We just need to start thinking outside the box, evaluate the idea and then decide if it would work or not.
Big policies and plans work big way, no questions about it. But that does not mean that we should stop considering smaller ideas as at times some of the smaller ideas work big way too. We just need to start thinking outside the box, evaluate the idea and then decide if it would work or not. Educating the masses is also very important to show them eventual gain due to some initial pains.
One similar smaller idea may be to increase cost of electricity for residential consumers and pass on the extra revenue as a break to the commercial/industrial consumers. On the face, it does not appear to be making sense. However, if we do complete analysis and look at the bigger pictures even residential consumers will end up gaining, not losing.
Increase residential electric power rates and reduce industrial/commercial electric power rates with the additional revenue generated.
Let us start with an example using hypothetical numbers.
- How is it today (numbers used are assumed)
- Total consumption of electricity in the province of Sindh is 5,000,000 units (assumed)
- 3,500,000 units are used by the industry
- 1,500,000 units are used by the household
- Rate of industrial unit: Rs. 15
- Rate of household unit: Rs. 10
- Using above numbers:
- Total revenue from commercia/industrial sector: 3,500,000 x Rs. 15 = Rs. 52,500,000 (Rs. 52.5 million)
- Total Revenue from residential sector: 1,500,000 x Rs. 10 = Rs. 15,000,000 (Rs. 15 million)
- Total Revenue generated: Rs. 52.5 million + Rs. 15 million = Rs. 67.5 million
- Now, let us increase household unit price by 20%
- New Price of household per unit: Rs. 12
- Total revenue: 1,500,000 x Rs. 12 = Rs. 18,000,000 (Rs. 18 million)
- Additional Revenue: Rs. 3,000,000 (Rs. 3 million)
- Now let us pass the additional revenue of Rs. 3 million to reduce prices for commercial/industrial customers
- New revenue from commercial/industrial customers: Rs. 52.5 million – Rs. 3 million) = Rs. 49.5 million
- Now let us calculate per unit cost for industrial consumer: Rs. 49,500,000 / 3,500,000 = Rs. 14.14 (9.4% reduction, say 10%)
- i.e., using the Rs. 3 million additional revenue the price for commercial/industrial consumers to be reduced by 10%
- In the nutshell what we need to do is:
- Increase price for residential consumers by 20%
- Decrease price for commercial/industrial consumers by 10%
- When residential consumer started paying 20% more, they will reduce their energy consumption by 5%
- This will reduce energy consumption by 5%
- So total net impact on home consumer will be approx. 15% (not 20%)
- Also, industrial consumer will pay 10% less, their cost of production will decrease
- Which will reduce prices
- Products and services will be more affordable by consumers
- Increase exports
- Increase employment
- Increase household income
- Increase purchasing power of individuals
- Increase foreign exchange inflow
- Reduce price of dollar
- Will reduce prices of imports
- Will reduce prices of imported goods and services
- Increase taxes for the government
Since price s got reduced by commercial/industrial consumers, they will be happy for sure. But considering the reduced impact due to reduced consumption, decreased prices of goods and services, increased employment, increased income, and increased purchasing power even the residential consumers will also end up happier. And due to increased economic activity and taxes, even the government will be happy too.
The above is just a raw idea. It does need reality checks and will need adjustments to align with ground realities before the same could be seriously considered or not. rejected.
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March 14, 2020