Burden of Rs650bn shifted to consumers: Govt fails to improve power sector’s performance

ISLAMABAD: The Federal Government failed to bring any significant improvement in performance of power sector during 2021 and retained its focus on increase in tariff to enhance recoveries of Discos.

During the year, consumer tariff was increased nine times through Quarterly Tariff Adjustment, inclusive of base line tariffs as per the agreement with the World Bank, and Fuel Cost Component (FCA) mechanism. The cumulative additional financial burden of Rs 650 billion was passed on to the consumers, except lifeline consumers.

Informal discussion with officials and official documents show that Discos recoveries were less than 90 per cent in 2020 declining to 88 percent in 2021, almost ten per cent less than the targets set by National Electric Power Regulatory Authority (Nepra). Discos were pressured by their administrative organization, Pepco, which was renamed as Power Planning and Monitoring Company, to improve recoveries - a feat that led to sending “bogus” detection bills to consumers. Losses in Hesco, Sepco, Qesco and Pesco remained far higher than Punjab-based Discos.

Nepra has revised the loss target of Discos from 15.53% to 13.46% which was notified by the GoP in February 2021. The actual T&D loss of Discos for FY 20-21 stood at 17.32%.

Officials claim that due to revision in loss targets, circular debt has increased from Rs. 42 billion to Rs. 120 billion per annum. The stock of circular debt has risen to an alarming Rs 2.5 trillion due to dismal performance of the power sector.

Officials further contend that while revising the Discos loss targets, Nepra has not incorporated any margin on account of law-and-order situation which was previously allowed to Discos; whereas a margin of 5.2% has been assessed for K-Electric in its Multi-Year Tariff determination. Power Division has suggested the government to remove this disparity.

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Power Division has suggested that following guidelines be issued to Nepra: (i) T&D loss assessment methodology should be revised consistent with the practice adapted for K-Electric;(ii) Discos loss targets should also include a percentage margin on account of the prevalent law-and-order situation;(iii) for future target setting, 5-year gradual loss reduction targets should be determined starting from actual loss level of 17.82% in FY 19-20, on the same pattern as adopted for K-Electric; and (iv) T&D loss targets for FY 20-21 & FY 21-22 should not be further reduced as the period has already lapsed.

Power Division has hinted that if proposed guidelines are not incorporated, excess losses of more than Rs. 500 billion would accumulate in circular debt in next 5 years.

There was no letup in load shedding in those areas where losses are more than 10 per cent especially in areas of Hesco, Sepco, Qesco and Pesco where people are facing load forced shedding even in THE winter, when overall demand is just 10,000 MW. The revenue-based load shedding is being done as per agreement with the IMF, World Bank and ADB.

The incumbent government has completed 660MW HVDC (High Voltage Direct Current) Matiari—Lahore transmission line, which began during the tenure of PML-N government. However, a dispute still exists between NTDC and the Chinese company on costs which would now be included in the revised tariff.

The Transmission system of NTDC has improved due to which 23,633MW electricity was transmitted on June 11, 2021 as compared to 23,303 MW in July 2020.

Some generation has also been included in the system after which installed capacity is around 40,000 MW whereas dependable capacity is 33,000 MW but the system can transmit only 23,000 or 24,000 MW.

The regulator, in its reports, has pointed out deficiencies in the Discos’ system and suggested their privatisation.

Privatisation Commission has been given the assignment to give Discos to private sector management contracts and performance contracts, which has not yet been completed.

The performance of Karachi Electric (KE) has improved with respect to distribution network but it still has not commissioned its 660 MW RLNG-fired power plant at Port Qasim, which was due in November 2021.

The regulator has conducted a comprehensive analysis of power plants operating under Wapda for the FY 2018-19 and 2019-20 which was presented to the Authority and shared with Wapda and in-house professionals. Pursuant to instructions of the Authority, a meeting was conducted with Wapda, CPPA-G and NTDC on1 September, 2021 in order to further discuss the following issues: (i) conversion of tariff structure of old Wapda hydel power stations from “take or pay” to “take and pay”; and (ii) non-imposition of Liquidated Damages (LDs) by CPPA-G on Wapda on account of Wapda hydel Power Stations availing higher outages than allowed limit as specified in their PPAs.

M&E Department initiated hourly analysis of KE’s generation dispatch data to verify compliance with its Economic Merit Order (EMO). Accordingly, shortcomings in certain areas of system operation were highlighted and shared with KE, along with directions to resolve its shortcomings and ensure economic dispatch as per the EMO. Moreover, a substantial amount was withheld from KE’s monthly fuel price adjustment claim on account of EMO violations.

The government also finalised new agreements with IPPs of pre 1994 policy, 1994 policy, 2002 policy and 2015 aimed at bringing down tariff by Paisa 43 per unit in the next 40 years. Power Division has paid the entire agreed amount to pre- 1994, 1994 and 2015 (renewable though not projects set up under China Pakistan Economic Corridor) but IPPs of 2002 policy have not been paid even 40 per cent as first instalment of agreed amount.

Copyright Business Recorder, 2021