ISLAMABAD: National Electric Power Regulatory Authority (NEPRA) has reportedly accused the federal government of not allowing distribution companies (Discos) to take their commercial decisions independently through their respective Boards.
In State of Industry Report (SIR), 2022 released on Friday, the power sector regulator stated that during the FY 2021-22, the allowed T&D losses for the Discos were 13.41 percent whereas actual losses were 17.13 percent. Due to the difference of 3.72 percent, the financial loss on this account has been worked out at around Rs. 113 billion. In addition, NEPRA determines the revenue requirement on 100 percent receivables.
Receivables of Discos are one of the major issues that NEPRA has highlighted for the past many years through SIRs, determinations, etc. During FY 2020-21, the receivable amount of Discos including KE was around Rs 1.398 trillion, whereas during the FY 2021-22 the receivable amount is Rs. 1.6804 trillion, showing an increase of Rs 282.232 billion.
During the FY 2021-22, the receivable amount in terms of percentage was around 90.51 percent thus incurring the loss of Rs 230 billion of the billed amounts. The overall impact on account of additional T&D losses less recovery works out as Rs 343 billion. This contributes to the accumulation of circular debt.
The biggest challenge for the country is to overcome the Circular Debt which is hampering the power sector, particularly investors and end-consumers at the same time. This has detrimental impacts on the economic growth of the country. As of June 30, 2022, the circular debt stood at Rs. 2.2527 trillion as against Rs. 2.280 trillion during FY 2020-21, thus decreasing the amount of Rs. 300 million during the year.
Besides losses, recoveries, underutilization of the assets, running defaulters, and delays in payment of subsidies are among the contributory factors towards circular debt. The financial impact of running defaulters is around Rs. 700 million, which is alarming as these consumers are still connected to the system and no action has been taken by the respective Discos to recover their billed amount from these defaulters. Further, non-payment of subsidies by the Federal/Provincial governments promptly is another issue that can easily be settled through timely payment.
NEPRA maintains that the volume of circular debt can be reduced with some innovations and transformations like outsourcing meter reading and revenue collection business in the high loss areas to minimize the loss on this account. In order to curb the existing Circular Debt, bridge financing in form of loans on the existing power supply network to the end-consumers has been obtained which is a vicious cycle. The permanent solution to the problem of Circular Debt lies in developing the efficiency-driven and financially viable power sector.
‘Burden of Discos’ overheads adding to misery of consumers’
According to the Report, performance of the Discos is the major concern as highlighted in the previous SIRs which are affected due to higher T&D losses and less recovery affecting the cash flow with the CPPA-G for onward payments to transmission and generation companies.
The higher T&D losses are of much concern keeping in view the higher average fuel cost, which is increasing the difference of loss due to costlier fuel and devaluation of US$/PKR impact. Further, the revenue loss in case of non-delivery of the generated electricity is another issue.
Besides load shedding on AT&C loss basis, it has been observed that forced load shedding was made in order to avoid costlier generation as well as to keep the feeder losses at targeted level. NEPRA received multiple complaints regarding forced load shedding, which was contradictory to the scheduled load shedding indicated by the Discos.
In addition, the fatal incidents have been enhanced, which raise a question mark on the safety SOPs adopted by the Discos. Overloading of the power transformers and events of burning/blasting of the distribution transformers in different DISCOs questions the quality of services, equipment procurement, quality control and quality assurance, and its maintenance and monitoring system of the concerned Discos.
Issues pertaining to the performance of the DISCOs are as follows: (i) load shedding based on A&TC losses is observed in many DISCOs including PESCO, QESCO, HESCO and SEPCO. The criteria for AT&C losses as defined is the feeder which has a minimum of 20% and larger AT&C losses.
NEPRA does not support and endorse the AT&C losses-based load shedding. NEPRA is of the considered view that under any law, DISCOs cannot punish the majority of law-abiding and regularly paying consumers on the pretext of theft by only a handful of consumers. Under the constitution, electricity is the basic right of every citizen. The inefficiency of Discos due to higher T&D losses and less recovery does not permit them to enforce AT&C loss-based load shedding.
It has been further observed that due to load shedding the recovery of the capacity charges from the respective feeders is compromised which is another issue for the power sector;(ii) in addition to the above forced load shedding for avoiding costlier generation has been observed in the Discos.
Even in IESCO, LESCO, GEPCO, MEPCO and FESCO regions, forced load shedding has been incurred thus underutilizing the available capacity for which capacity charges are paid to the generation companies; (iii) load shedding enforced by the Discos is hurting the power sector in many ways i.e. the available generation capacity remains under-utilized for which the capacity charges are being paid, the RE power plants are paid for NPMV and the thermal power plants are operated on part load, due to which PLAC and compensation for degradation are being paid; the transmission capacity is underutilized resulting in an increase in transmission use charge to compensate for its required liquidity; at the Discos end, the demand is not served as projected, and the desired sales growth is not achieved, which result in increasing the distribution margin to ensure availability of required finances.
This all contributes to increasing the consumer end tariff. It is required that proper economic analysis be carried out to ascertain the financial impact of the exercising load shedding against the zero-load shedding scenario keeping in view the above factors, and accordingly, an informed decision should be made in this regard.
Further, NEPRA has observed that while exercising load shedding the relevant feeders are shut down as a whole. Load shedding on the entire feeder on account of AT&C loss basis is not justified at all. Such load shedding in urban areas is a matter of much more concern regarding the working and governance of respective DISCOs.
The DISCOs are therefore, required to improve governance in their area to discontinue load shedding which on one hand is disturbing the life of people while on other hand it is burdening the electric power sector as well as the national exchequer by various means.
During FY 2020-21, the total pending connections were 501,843 with a cumulative load of 945 MW in the whole of Pakistan. Whereas, in FY 2021-22, the total pending connections were 176,829 with a cumulative load of 1,215 MW, which indicates that the numbers of pending connections are comparatively lower however, the cumulative pending load is on the higher side.
Copyright Business Recorder, 2022
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