Reportedly, the energy regulator NEPRA is initiating legal action against DISCOs due to their deteriorating performance in transmission and distribution losses and poor recovery. News flow suggests that the financial impact of unrecovered dues has increased by one-third to Rs315 billion in FY24 compared to Rs236 billion in the previous year.
This poor performance could be attributed to multiple factors. For instance, the decline in recovery can be linked to rising electricity costs, which have adversely impacted affordability. This not only increases defaults on bills but could also contribute to higher theft, exacerbating operational losses.
On the other hand, the high target of 100% recovery from DISCOs remains intact. This results in higher losses, even if recovery ratios are maintained year over year, as increased prices create a higher deficit in rupee value. This presents a chronic challenge.
Some DISCOs are actively working to clamp down on theft and are consistently acting against illegal connections. Regular reports detail crackdowns across the country, and there are also multiple initiatives being undertaken to lower production costs, such as negotiations with IPPs. However, the long-term impact on investment could offset the benefits of lower prices.
One cannot overemphasize the need for improving governance and addressing the sector’s challenges in a pragmatic and holistic manner. This is easier said than done, yet it is extremely important for fixing the sector.
Long-term sustainability in the power sector may require flexibility in decision-making. On the issue of electricity theft, it is imperative to strengthen and enforce legal frameworks so that those involved in theft or chronic default are held accountable by the system, instead of loss-laden DISCOs bearing the brunt.
Moreover, the regulator must recognize the ground reality; 100 percent recovery is nearly impossible without improvements in the broader macroeconomic landscape. This gap will continue to drive circular debt. The tariff-setting process must also account for operational realities by providing recovery cost allowances and ensuring adequate returns for DISCOs.
An ideal scenario would be one where the government generates sufficient revenue through taxation to offset the expenses incurred by DISCOs. This should be complemented with better tariffs for utilities that incentivize investment and offer adequate returns when operational performance improves. DISCO governance systems should actively detect theft, and legal systems should be strict and swift in addressing such acts. This combination can help deter theft.
Achieving this vision requires the government to zoom out and consider the intersections of the power sector with other areas. It’s essential to move beyond isolated victories and work toward implementing holistic measures.
Actions like these will embody the true spirit of governance and help steer the sector towards improvement. The journey is slow and challenging, but it is one that must begin.
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