Power sector woes– AGP report says it all

A damming report by the Auditor General of Pakistan (AGP) says it all insofar as the massive mess-up in the domestic power sector, the consequences of which are being borne by the people of this country, is concerned. The AGP report has identified leakages, malfeasance and many other loss-making practices, which are inflicting on the nation a loss of Rs 4.5 trillion.

This is happening at a time when all hands are stretched towards lenders, pleading them to bail the country out. That the country has been hit by an economic crisis for which its ever-bleeding power sector carries the main responsibility for crippling the nation’s industry and households that are burdened with unaffordable electricity tariffs is a fact.

The report for the year 2023 -24 comprising over 442 pages highlights, among other things, non-recoveries, over-payments, poor asset and financial management, embezzlement, theft, fraud and over-billing.

The audit of Central Power Purchasing Agency—Guaranteed (CPPA-G), a commercial arm of the power division acting as financial agent of power companies, has revealed that the amount of receivables that it has against Discos, including K-Electric, stands at Rs2.53trillion on account of sale of energy. This default has blocked funds and delayed payments to power producers who, in turn, charge late payment surcharges, resulting in further bleeding of the sector.

“Had this huge amount been recovered from Discos, liquidity position of power sector could have improved, thereby eliminating the burden of circular debt and late payment surcharges,” the audit report says.

The report has added that “Financial inefficiency resulted in non-recovery of Rs 2,530,645.77 million on account of sale of energy from Discos during 2021-22”. Additionally, “an amount Rs877.596 billion was recoverable from operational and permanently disconnected energy defaulters” both in the government and private sectors, the report revealed.

The report has also underlined the fact that no efforts were made by the managements to accelerate the recovery from defaulters. “Non-adherence to commercial procedure resulted in non-recovery of Rs 877 billion from energy defaulters up to 2022-23“.

The report has said the law requires that “all losses whether of public money or of store, shall be subject to preliminary investigation by the officer in whose charge they were, to fix the cause of the loss and the amount involved”. No such investigation takes place.

The operational part is equally flawed. The audit of National Power Parks Management Company Ltd (NPPMCL), has revealed that power generation plants generated 41,774.68GWh during 2020-21 to 2022-23. Out of total generated units 619.6 million units were generated by using costly fuel, i.e., HSD due to non-availability of RLNG, which caused consumers to pay an extra cost of Rs61.97 billion.

A question here arises why was RLNG - a cheap fuel, not available? An audit of this default may well identify further lapses in the system.

Furthermore, the report has identified that the Discos have caused over Rs196 billion losses on account of higher system losses than the targets set by the regulator. System losses ranged from 8 to 21 percent for various Discos and the said amount of Rs 196 billion is on account of losses above the set limit. This was passed on to consumers.

What all the AGP has blatantly identified in his report points to a rudderless power sector characterized by incompetence, mis-governance and, above all, lack of will and strategy to set things right. The mindset ‘to let business as usual’ prevails.

It is intriguing that all these well identified flaws in the power sector have gone unnoticed by the International Monetary Fund (IMF) from one IMF programme to another. There have been, from time to time, some muted demand of reforms in the power sector, but not binding. As such no meaningful reforms ever took place in the power sector. Binding indeed was doing away with subsidies and increase in tariffs to cover the losses and keep the cash flow moving. This was carried through faithfully by the managers of the state.

But the ills in the power sector did not go unnoticed by the people of the country. Last Wednesday, for example, the traders of the country went for a shutter-down strike to protest against ‘unjustified’ taxes and ‘exorbitant’ electricity bills.

The business community vowed that they would not accept the current structure of electricity tariffs. “Excessive billing has prompted people to burn bills, suspend bill payments, and resort to protests and rallies. This shows that the country is heading towards civil disobedience,” the business leaders said.

Often the wrath of the protests is diverted to IPPs (independent power producers) in the country, notably, the capacity payment drain. This undoubtedly is one of the key factors but certainly not the only one. Bigger losses emerge from the highly compromised systems and processes of the power sector.

So much of good can be achieved in the power sector in so short a time by just ushering in good governance through appointment of professional boards of directors and professional teams of principal managers, all based on merit and competence. Processes and systems of revenue and cash flow management, billing and recovery management, payment default management and line losses management all duly exist but they are being bypassed and compromised on account of political expediency and vested interests.

Removal of these two ills backed by professionalism and good governance can reset the processes and systems of the power sector towards significant improvement.

This is the least the ailing industry of the country and that segment of society, which is challenged each month to settle the unaffordable electricity bills, expects from the government.

Copyright Business Recorder, 2024