EDITORIAL: How on earth is Nepra (National Electric Power Regulatory Authority), a public sector entity, going to take legal action against Discos (power distribution companies), also public sector entities? It turns out that the power sector regulator was so upset by the circular debt (CD) report for June 2024 that it decided to sue Discos that contributed to CD of Rs276 billion in terms of transmission and distribution (T&D) losses as well as a decrease in the recovery ratio for FY2023-24 against FY2022-23.
It’s been reported that Discos’ electricity purchases for FY2023-24 amounted to one percent less than the previous fiscal year, but their losses rose to 18.31 percent compared to 16.84 percent in FY2022-23, an increase of 1.47 percent.
The regulator had allowed T&D losses of 11.77 percent, and this excess of 6.54 percent contributed about Rs276 billion to the power sector circular debt for the last fiscal; this even though distribution companies were allowed an investment amount of Rs163.1 billion to improve their network in FY2023-24. It’s also quite bizarre that while the recovery rate of 92 percent remained about the same in the two fiscal years under review, the financial impact of the unrecovered amount increased from Rs236 billion in FY2022-23 to Rs315 billion in FY2023-24.
All this shows that the same old problems ranging from inefficiency and sheer incompetence all the way to unchecked corruption typical of the government sector go on as before, even though cutting the circular debt is one of the core demands of the IMF (International Monetary Fund) bailout programme.
And even as the EFF (Extended Fund Facility) has gone off course in its first two months, and a visiting IMF team has expressed displeasure and asked the government to reduce its expenditure or roll out a mini-budget, rising CD is going to present yet more difficulties in smooth disbursements of subsequent tranches of the facility.
Yet nothing changes in the power sector, and it’s as if the government, especially the regulator Nepra, has been asleep for the last decade and a half as the CD kept mounting. We even witnessed a one-time lump-sum but unaudited payment of the entire power sector CD about a decade ago.
But since no thought went into correcting the problems that caused the debt in the first place, it’s no surprise that it ballooned to much bigger proportions in no time. And now it’s a threat not just for the power sector and the national exchequer but also the country because the Fund has been pretty clear about its upfront conditions, failure to meet which can unravel the bailout programme in a hurry. Should that happen – which is very likely if something is not done about the CD very quickly – sovereign default itself will become a very real possibility.
It’s also been reported that Nepra has communicated its dissatisfaction with power division since Discos are under its administrative control, asking the secretary to “look into the matter personally and take all necessary actions/measures in order to overcome the inefficiencies of Discos and to make improvements in the best interest of the consumers as well as the national exchequer”.
But, surely, the secretary would have been aware of the spike in CD over the last fiscal, long before the annual report caused so much frustration in Nepra. And if he were bothered enough to check the rot, he would have done it when the same old story was playing out last year.
Now, as usual, one will hold the other responsible for all the oversights. But this blame game has run its course as well. And it’s up to the government to finally come up with an action plan that will handle this problem once and for all.
Everybody knows what needs to be done. It’s the political will to do it, not legal action against Discos, that’s been missing all these years and decades.
Copyright Business Recorder, 2024
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