Power distribution sector’s performance – I

Circular debt and privatisation of power distribution companies are under active discussion these days in the background of International Monetary Fund’s (IMF’s) demands. Apart from the IMF, the issue is important enough, warranting consideration at domestic level as well. Unsustainable electricity tariff is considered as one of the woes, and cross subsidies being one of the culprits.

From a social point of view, this is the oddest time to consider reforms when the largest victims of the economic downturn are the poor and the poorest of the country.

How to minimize impact on the poor is the biggest question in any sectoral reforms that are to be on the policy discussion table. In this context, performance review and improvement of DISCOs is to be possibly on the top of the list. We will take up a few indicators and try to draw up some conclusions in this space.

For reviewing the status of the power distribution sector, the most revealing is the negative equity of all DISCOs. It may be startling to note that all DISCOs have a negative equity due to continued accumulated losses. We have 2020 data courtesy a USAID study.

Total DISCOs’ equity is minus Rs 1.013 trillion. PESCO (Peshawar Electric Supply Company) tops the list with minus Rs 282 Billion, followed by QESCO (Quetta Electric Supply Company) Rs 196 billion, LESCO (Lahore Electric Supply Company) Rs 170 billion, HESCO (Hyderabad Electric Supply Company) Rs 121 billion and SEPCO (Sukkur Electric Supply Company) Rs 122 billion being among star losers. PESCO’s negative equity of a magnitude of Rs 282 billion has a context of being the highest T&D loss (38.69%) company. One would have expected QESCO to be the highest loss share company, but it isn’t.

T&D losses

Disco T&D losses have come down from 21.7% in 2017 to 17.5 % in 2021 as against Nepra’s (National Electric Power Regulatory Authority’s) target of 13.41%, while KE (K-Electric) losses have come down to 15%. KE losses are still more than better performing companies like IESCO (Islamabad Electric Supply Company), FESCO (Faisalabad Electric Supply Company) and GEPCO (Gujranwala Electric Power Company). Apparently, there is no reason that KE losses should not be comparable. However, this is a separate issue.

T&D losses are indeed one of the worst aspects of DISCO performance and source of losses. These should not exceed a level of 5% and a maximum of 10. As expected, PESCO T&D losses were the highest of all at 38.69%; followed by SEPCO 36.27%; HESCO 28.82%; QESCO 26.68%.

Again, it is surprising that HESCO and QESCO losses are comparable, contrary to general expectation that QESCO would have the largest losses as a % of sales. Among better performers are IESCO, GEPCO and FESCO having losses fewer than 10%. Typical T&D losses in OECD countries are at around 5%. In lesser countries, T&D losses are at 10-15%.

Recoveries and receivables

Total Disco receivables in 2021 were of Rs.1.266 trillion. Receivables in public sector companies balance sheets are often doubtful. If these receivables are discounted, the negative equity would jump to Rs.2.26 trillion. However, before discounting receivables totally and finally, let us have a look at its break-down. Out of the total receivables, Rs 683 billion, almost half belong to private consumers. How much of it will be actually realized is an open question.

Similarly, Rs.354 billion is due on account of Balochistan agricultural consumers. Will GoP or provincial government pay on their behalf? In any case, it would be a loss. The only realizable receivable is probably Rs.189 billion from the government, which is on account of unpaid bills by the government department.

There is some problem in 2021-22 recovery rates as negative losses have been shown meaning that more money was received than billed. Perhaps, it is due to recovery of some long over-dues, one is not sure. Average bill recovery rate of all DISCOs comes out to be 90.51% in 2021-22. Billing was at Rs 2,423 billion while recovery stood at Rs 2,193 billion, reflecting an unrecovered amount of Rs.230 billion.

The lowest collection is of SEPCO at 56.6% as compared to HESCO’s 70.1% and QESCO’s 80.6%. Among bad performers, Mepco’s (Multan Electric Power Company’s) recovery of 94.21% is surprising, while of PESCO’s 87.7%. It is surprising that IESCO recovery is the lowest among good formers at 90.3%. Perhaps, there is some mistake in this data. If unrecovered amount is reduced by 50%, there is a saving/revenue potential increase of Rs 115 billion.

It appears that T&D losses could be brought down to 10% or less than 10 % as is the case with the better performing companies like IESCO, FESCO and GEPCO. It is said that half the T&D percentages are technical losses and half are theft; this may be true in the case of IESCO, FESCO and GEPCO where the losses are less.

In case of companies with higher losses, PESCO, HESCO and HESCO, this is not the case. Only 5-7% may be technical loses, and the rest 25-30% may be sheer theft. Poor law and order conditions and elite participation in it are the widely acknowledged reasons.

DISCOM situation in the region

Disco is called DISCOM in India; both mean distribution companies. There is a mixed situation in most developing countries. For example, in India AT&C losses even exceeded recently from 20.73% in 2019-20 to 22.32% in 2021-22. India has targeted it at 15% which has yet to be achieved. Amazingly, these losses were at 40% in the year. In problem areas, the losses are of this order. In Delhi, Kerala and Punjab, the losses are around 10%.

DISCOM losses in India may even further deteriorate in coming years due to economic factors. DISCOM losses after receiving a subsidy of IRs.986 billion were IRs 61 billion with accumulated losses on the books at IRs 4.886 trillion(In Pakistan parlance ,this may be taken as near equivalent of circular debt). The gap between unit revenue and cost increased from IRs 0.30 per kWh earlier to IRs 0.90 per kWh in FY 21. This gap should increase due to higher fuel costs in international market, although India is not heavily dependent on imported coal as Pakistan is.

The ills in India are the same as in Pakistan: poverty, theft, corruption and elitism. Ironically, the solutions cited in the Indian literature are identical with what is normally discussed in Pakistan: big targets lesser achievements.

For example, India has plans to install smart meters for almost a decade. It has achieved an implementation by now of 2-4% in this respect. Fortunately, Pakistan has adopted a programme of smart meters on Distribution Meters, which India has too. It may cost under 500 million USD. Otherwise, complete smart metering on all consumers in Pakistan would have cost 5-7 billion USD. This kind of money would not be available here .There are other priorities and approaches to improve DISCO performance.

Bangladesh reduced its T&D losses from 36.19% in 1988 to 15.42% in 1998, in a period of only 10 years. Is it poverty reduction or increase in GDP growth that has caused it? Bangladesh also had to go to the IMF recently under similar reasons of higher energy imports. Both Bangladesh and Pakistan are greatly dependent on LNG and furnace oil imports.

(To be continued)

Copyright Business Recorder, 2023