Pakistan’s power distribution system is consistent. Consistently poor. While transmission and distribution (T&D) losses for FY22 at 17.13 percent are slightly lower year-on-year, this can hardly be termed as progress. The PTI government in its nearly four-year tenure could only manage to bring the average T&D losses down by a paltry 60 basis points, from the previous four-year period.
Mediocrity seems to have become a much-accepted state of affair in the power sector, and more so in the distribution sector. The difference of actual T&D losses with that allowed by the regulator at 3.7 percentage points is the highest in ten years. In real terms, FY22 was the worst year in terms of T&D losses. The financial impact of the same has been worked out at Rs113 billion.
Mind you, the impact only calculates the loss resulting from the deviation from allowed loss limit and not the actual value of the units lost, which is significantly higher. The overrun is not referenced in the tariffs, and then feeds into the circular debt flow.
Then comes the more worrying, yet less talked about variable, that of billing collection. Save for the Covid hit FY20, recovery at 90 percent is the joint-lowest with FY19 in over ten years. Let that sink in. What makes matters worse is that unlike T&D losses, there is no allowance for lower recovery in the reference tariffs, which assumed 100 percent recovery by the distribution companies.
The financial impact of the recovery loss for FY22 has been worked around Rs230 billion by Nepra, taking the total financial loss from distribution inefficiencies to Rs343 billion. So, that is where it all starts without bringing in all other issues that the power sector finds itself it. Decades of consistently poor performance should be enough to convince that whatever has been done in the name of reforming the distribution sector, has not worked.
More of the same cannot do, and the reform process has to move beyond the cosmetic Board changes, without decentralizing discos’ control. While on paper, discos now do appear as separate corporate entities, but the inability to grow as commercially viable entities and inability to take independent financial and commercial decisions, have hampered the progress. The system is built such that it incentivizes poor performance.
You can have more multimillion-dollar project loans with the likes of ADB and World Bank aimed at reforming the power sector, but that is a rabbit hole. Nothing good has come out of it, other than cosmetic improvements in data dissemination. The good discos have long been good. The bad ones have gone worse. It should not take a rocket scientist to go ahead and implement real changes. Privatization has been the topmost agenda for the last two governments. It keeps eating dust. Don’t expect the circular debt to miraculously disappear by just focusing on revenue measures around increasing tariffs, when the starting point is in excess of Rs340 billion.
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