Circular debt exceeds Rs2.3trn: State-owned Discos’ losses reach Rs1.35trn: think tank

ISLAMABAD: The state-owned electricity Distribution Companies’ performance has depicted a gloomy picture as their accumulated losses reached Rs 1.35 trillion and played a pivotal role in piling up of circular debt which crossed Rs 2.3 trillion.

Leading think tank Prime Institute in a report on “State Owned Electricity Distribution Companies: a performance review” finds unsatisfactory performance of state-owned power sector distribution companies and recommended policy reforms.

The distribution companies are continuously accumulating losses, which amounts to Rs.1,355 billion in five years (2016-20). The report highlights the underlying reason of inefficiencies such as delay in the structural reforms and continuous bailouts by government, which eliminates the need of improvement.

“As per our findings the Ministry of Power or Nepra didn’t take any concrete measures to improve the performance of distribution companies,” said Tuaha Adil research economist of Prime Institute during the presentation.

From 2016-20, the report highlights that the distribution companies accumulated the loss of Rs. 452 billion in terms of inability to recover billed amount, while loss of Rs 195 billion was accrued due to outdated transmission and distribution infrastructure. The underlying reason for T&D losses remains lack of adequate investment on behalf of some distribution companies while some invested more than the allowed limit. The distribution companies were also found to be in breach of NEPRA targets, and for which small penalties were also imposed but there is still prevalence of defiance. Therefore, government has to bailout distribution companies every year to keep them afloat, which cost Rs. 708.4 billion in the stated period.

Despite the surplus generation capacity in the country, there is still prevalence of power outages and consumers faced average daily load-shedding of more than two hours in some regions. Consumers also faced disruption in services for which complaints were registered and some distribution companies received large complaints thus depicting low consumer satisfaction.

Public safety is an important component of the performance evaluation and incidence of 680 fatal accidents in five years display a grim picture and non-compliance of safety protocols. Furthermore, Nepra also appears unable to ensure the implementation of safety protocols.

“Nepra hardly criticize or impose heavy fines on state-owned distribution companies for this criminal negligence,” Tuaha pointed out.

The report displays delays in the provision of new utility connections to the public depending upon the size of population. Total pending connections stood at 1.2 million in five years. These delays can be attributed to underutilization of surplus generation capacity.

The report recommends that government should undertake policy and technical reforms for higher efficiency of the sector. Therefore, a sustainable framework is needed for power sector reforms starting with complete or segment wise privatization of state owned entities, review of tariff regime to reflect costs and better implementation of policies through more empowered and resourceful Nepra. Besides policy reforms, attention is also needed towards up-gradation of entire distribution infrastructure to curb losses.

Copyright Business Recorder, 2021