Pakistan’s power sector is in a constant state of flux. It has its weird cycles of its own- a period of severe power shortages followed by a supply glut. In the former, excessive load shedding and sub-optimal high-cost self-generation have been the norm while high-cost, circular debt built up and falling demand is the case in days of surplus generation capacity.
The fault lies in poor planning: too much focus on generation in a short time (like right after the 1994 and 2015 policies) and too much presence of government in the value chain.
Nowadays, the sector has transitioned from challenges of constrained capacity to one of excess capacity charges. As per the NEPRA State of the Industry (SOI) Report, the capacity payments have increased by around 2.5 times during 2020-24.
This is prompting two kinds of discussions – one is focused on pragmatic demand side management, identifying new ways to stimulate demand and introduce energy efficient usage that can address the situation in a better manner.
The other calls for the complete elimination of load-shedding, citing that excess supply merits a glut in the market.
In theory, this is a great approach, but it is also premised on the idea that DISCOs have a choice in the matter, which is far from reality. DISCOs are in a terrible bind. They are expected to be the recovery arm of the entire value chain, ensuring their survival while operating in a regulated environment.
First, recall that consumer-end tariff is based on DISCOs to recover 100 percent of the amounts billed to customers, with no support for missing the targets. This is not easy considering that some customers using 200 units per month (which are not in the protected category due to seasonal variations) are today paying 3 times the price in 2019.
In days of skyrocketing inflation and low growth, people’s ability to pay inflated bills diminishes. There is also a seasonal trend observed where recoveries improve during winter months when electricity consumption (and bills) goes down compared to the summer months.
As per NEPRA SOI, over the last 5 fiscal years, the cumulative total unrecovered amounts of units that have been sold across the power sector is Rs956 billion. QESCO tops the list with Rs285 billion unrecovered. In FY23 alone, this number was approximately Rs250 billion.
These are mind-boggling numbers. It is pertinent to note that these losses are being incurred within a situation where a load shed is taking place. If the restraints are removed, these numbers would skyrocket. These numbers possibly account for the decrease in energy purchases of approximately 9.41 percent in FY23 compared to FY22 due to price hikes.
Pakistan does not have the fiscal space to cushion these costs. How can it be when the number of taxpayers in the country (reported by FBR at 5.3mn as of December 2023) is hardly 15 percent of the number of total electricity connections in the country? LESCO has more electricity customers than total national taxpayers!
The other element to note is that the marginal gain on a unit sold would not be able to outweigh the scale of billed units that never get recovered. One would also advocate for using the stick where the carrot has failed – aggressive disconnections and anti-theft crackdowns should take place, but the data here is not encouraging either.
In FY23, across XWDISCOs, total outstanding receivables from disconnected defaulters stood at Rs143 billion. Out of this, Rs115 billion or 81 percent remained unrecovered from defaulters disconnected over 3 years ago.
There has been progress recently, but it still leaves an abysmal gap to be bridged at the same time, as the overall energy sectoral circular debt crosses Rs5.5 trillion on the back of these myriad challenges.
The situation is dire. It does not call for magnanimity, but a serious inward look at the governance of the sector. Things can and will gradually improve, but until such point, load shedding may not be a matter of choice for DISCOs.
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