Discos—a dead weight around our necks?—II

Unbeknown to the Regulator, presently the DISCOs are not even maintaining their existing infrastructure. Basically, they are wasting the outlays on works that do not update or properly assure due maintenance.

Besides, the funds available for ELR (energy loss reduction) works are wasted. Similarly, the existing and sadly approved (by Nepra) Disco long-term investments plans need to be professionally redone.

According to estimates, LESCO alone needs an investment of Rs 700 billion in 5 years’ time (equal to its present yearly revenue base) to qualify it to be considered somewhat as a modern utility.

Discos—a dead weight around our necks?—I

These investment plans have to be funded from the Regulator approved resources, loans from the MLDAs (WB, ADB, etc.) and from the sources to be tapped by the new concession holder. And thus, the importance of a venerable financial house to be the lead bidder.

What would the concession holder look forward to. Its own BOD free from any political interference, freedom from the PPRA regime – which presently is responsible for the deeply ingrained and entrenched lowest bidder syndrome in the Country, the powers of hire and fire – given the audacity of the unions, etc., and support from all concerned to assure full recovery against the sold units: all of this is a very tall order for the government, but one thing is for sure viz. until and unless the pre-requisites are not promised no scheme can succeed.

On the other hand, it all is not anything special as similar effort was successfully completed by the Indian Capital Territory in mid 2000s.

All the ICT government, under the diminutive but the power-packed CM Sheila Dixit had to do was to support NDPL (North Delhi Power Ltd. –a TATA endeavor) and soon the Indian capital was enjoying the services of a world class power utility.

Presently, Kejriwal is able to provide free supply of 100 units per month to the Delhi residents with help of the most efficient NDPL. Thus, all of these covenants have to be built-up in the bidding documents/RFPs to assure participation of best of the best in the proposed bidding.

Discussing the timelines, it is suggested that the basics to the bidding for the long-term management contracts have to be completed in a maximum of three months.

As much work had been done by the PC during the last five years or so, it should not be any problem to firm up documentation etc. and for also constituting and notifying the requisite POE in this period.

Thereafter, the needed road shows, etc., have to be conducted in the various CCIs of the Country. There should be no need for any show outside the Country. The rest would follow and soon some DISCOs would be working under management concessions outside the perverse political intervention.

What would be the business model for the management concessions? How would the contractor or the long-term concession holder make profits from the endeavor – especially, when the Power Sector, besides being regulated, is presently also made to fulfill the socio-political requirements of the governments in power.

On the face of it, the first head that is available would be the DM (distribution margin) as fixed by NEPRA, then would be any future ROI amounts and the allied depreciation, etc. Such incomes that presently stand derived by the DISCOs have to be differently treated and also tackled in the new context. This could be shared between the concession holder and owner viz. the GOP.

The part retained by the concession would be towards the sustenance of the existing infrastructure and the portion for the GOP can be diverted to the debt-co viz. the PHCL. The sharing formula would be fixed after serious thought and acturial studies.

In case it is not done judiciously, then the whole concept would be jeopardized. This is so because the present infrastructure, including that relating to the so-called efficient Discos (LESCO, IESCO, GEPCO, FESCO and somewhere MEPCO), is decrepit, crumbling, breaking at the seams and bereft of any distribution engineering being considered while setting it up or being maintained.

Experts, on the other hand, are suggestive that all of the PHCL debt has to be picked up by the GoP as a sovereign debt – probably, that is the only way in which the envisaged concessions could work.

We need to understand that the first module to be undertaken has to immediately bring the existing infrastructure to order and surely in accordance with the correct utility and distribution practice(s).

The next of the modules to be taken up would be to upgrade the DISCO system in line with the modern requirements and with a view to fully complying with the tenets of the distribution code.

At present, all of the code seems to be held in abeyance unilaterally by the Discos. This could also be on account of the deep slumber which encapsulates the Regulator.

For maintenance and possible upgrading of the existing system, great amounts would need to be expended. All of these have to be allowed to be spent basically as a part of the concession agreement but after validation by the Regulator.

Similarly, the existing approved DISCO investment plans have to be redone by the concession holder(s) based on a 10-year basis and in line with the requirements set forth by the Regulator in its Distribution Code and those laid out in the concession agreements.

Coming over to the parameters designed for the concession to achieve the laid downs, the first would be to attain Nepra targets for both losses and recovery. Thereafter, would come the service objectives (including safety etc.) to be followed – again as those fixed by the Regulator each year and for which it duly provides-for in the tariff determination(s).

The third for the concession to achieve is an open architecture whereby the customer base would be part of tariff decision-making and also be responsible for DSM (demand side management) ostensibly to arrange for affordability of usage.

The concession would also allow for allied businesses to be undertaken by the concession, like provision of RE systems at customer sites, besides advising on EE (energy efficiency) as an ESCO and providing such equipment.

All of this is allowed and taken up by utilities world over. This is very important, if Pakistan has to convert to a single fuel economy in the near future.

Coming over to the recent CTBCM (competitive trading bilateral contract market) and the present doings in that realm, we see that there is an evident disconnect between the present style and conversion of the DISCO to a wires only dispensation.

However, one thing is sure and also important that the concession has to thrive in a differential tariff regime against the present socio-political retention of the uniform tariff in the Country.

Meaning, thereby, that the uniformity has to go on the immediate basis, while the concession would be allowed to contract additional generation in order to buffet the CPPA (G) supplies –again in a max of a year or so.

Consequently, the present single buyer model and PPIB dispensations that presently are in the hundreds, will have to be re-thought and then appropriately changed. Whatever one would say, the present has to change fastly with the single goal of provisioning at an affordable tariff for the poor customers.

Considering the above, the concession has to be designed in a manner that it caters for all of the requirements of the day and those that may crop up subsequently.

However, one thing is clear that a viable financial house entity has to be the main bidder, while possessing an impeccable professional team consisting of hard-core power utility experts.

No one other than this entity should ever be considered to vie for a long-term concession. It is also important to emphasize that the management concessions have to be awarded as soon as possible and surely within a maximum of six months only.

Fact of the matter remains that come what may, the public sector entities or the SOEs cannot ever be cushioned against the perverse political pressures, but through the private sector coming in.

(Concluded)

Copyright Business Recorder, 2023