Fixing power sector

The Special Assistant to the Prime Minister on Power has spelled out a roadmap to fix Pakistan's power sector. It advocates migration from the single-buyer and sovereign-guaranteed, take-or-pay contractual structure to market-driven dynamics of demand and supply mechanism without the need for a state backstop on volume or price. In this regard, the government and the regulator have recently approved an 18-month roadmap to set up a wholesale commodity exchange that will allow multiple buyers and sellers to trade electricity, including under a take-and-pay regime aimed at reducing the consumer tariff, improving service and sharing the federal government's financial burden with private sector participants. The roadmap supports the electricity wheeling regime which, since long, is under consideration by the regulator to facilitate business-to-business flow of electricity.

Regarding the power distribution companies, the roadmap foresees that the outright privatization may not be a feasible policy option in the near term and instead a public-private partnership arrangement amongst the federal government, the respective provincial government and a private sector operator as the interim way forward.

The roadmap advocates different tariffs for different distribution companies and cities based on the system efficiency and operational conduct of the respective distribution companies. In the near future, it can work out to be a strategy in the right direction which has been adopted all over the globe by mature electricity markets, on account of which tariffs came down and service improved.

The special assistant to prime minister concluded his submission by saying that "time is of the essence". It is indeed so. The incumbent government's remaining tenure permits a little over 2 years to sort out some major issues confronting the power sector. The time to roll out ambitious strategies is just not there nor is the country's power sector yet mature enough to sustain it. It hasn't tried anything out of the box so far.

Years of bad governance in the power sector have turned basic manageable issues into complex and unmanageable ones. The foremost being circular debt, non - performing power generation and distribution companies in the public sector (PSEs) and conduct of IPPs.

The circular debt in the energy chain, which stood at Rs105 billion in 2008 and was parked in a holding company ballooned by 454% to Rs582 billion by 2018 despite clearance of Rs480 billion worth of debt in mid-2013 by PML-N government. It now stands at Rs 2.3 trillion and is rising. So far the energy experts and strategists have failed to come up with a workable plan to arrest the trend.

The utility companies in public sector are loss-making enterprises. These are operating rudderless with ineffective and meaningless boards while the permanent positions of CEOs in many PSEs are yet to be filled.

With the initiative and efforts of the incumbent government, the Independent Power Producers (IPPs) have been somewhat tamed while there is room to further improve on it.

All said the three ills confronting the power sector are more of basic governance issues rather than financial and technical issues. The collective consequences of the above three key defaults in the power sector have turned Pakistan into a provider of the most expensive electricity in the region, which is around 25 percent higher than that in other countries of the region. Pakistan must have been doing something woefully wrong all these past years. To sustain industrial growth the government had to yield 25 to 50 % tariff relief. This is not sustainable in view of the pitiable condition of the national exchequer.

These are the three basic yet complex issues, which need to be first addressed on the ground by the planners and strategists on the payroll of the government to stabilise the crumbling power sector of the country which threatens its very economic sustainability. The sector is far from being ready to embark on a regime of a deregulated electricity market as envisaged by the government's energy planners and strategists.(The writer is former President Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020