Risk factors in power sectors identified

The government failure to recover electricity dues from the problematic areas and huge line losses are considered main hindrances in the way of investment in the power sector, it was reliably learnt. Sources said that the key risks analysis on power sector revealed that the energy demand is increasing around 8.8 percent in the country and government is unable to meet the gigantic challenge to attract investment in the power sector primarily due to risk awareness of the investors.
The failure to collect payment from the problematic areas was resulting in late payments and affecting the cash-flow cycle of investors, which leads to financing requirements and in turn increases the cost of developer. The other risk factors in power sectors identified as inter-corporate debt issues, regulatory snags, weak sovereign guarantee owing to macroeconomic weakness and subsequent vulnerabilities and fuel availability problem.
The regulatory and political wrangling is considered major reason for delaying the power projects and consequently increasing the cost estimates of investors. The government's inability to collect payment from the problematic areas, high generation cost, huge line losses as well as inadequate subsidy and lower tariff have aggravated the problem of inter-circular debt.
The problem of circular debt not only reduced repayment capacity of the government but also tested local banking limits to cater to cash flow of energy sector and raised question marks on sovereign guarantee. The problems are likely to persist because raising tariff is politically very difficult decision for the government due to fiscal constraints as well as International Monetary Fund (IMF) arrangements would not prefer to subsidies.
Thus the recommendations for the government are to expedite and strictly enforce recovery of dues from problematic areas, increase efficiency of distribution companies which could be achieved in a short span of time by using smart metering system. The problem of circular debt could also be minimised by offering differential tariff to the consumers willing to pay higher cost for uninterrupted power supply. The government can also promote power producer to directly sell to bulk consumers thereby eliminating the role of Central Power Purchasing Authority (CPPA) and distribution companies.
Moreover, the risk analysis also pointed out lack of co-ordination between Ministry of Petroleum and Natural Resources and Ministry of Water and Power as well as political will which is considered responsible for problems in power sector. A close co-ordination between the two Ministries and political will are suggested to align the energy goals.