ISLAMABAD: National Electric Power Regulatory Authority (Nepra) has said that excess generation capacity, persistent administrative and governance issues, combined with lack of planning and under investment in technology have aggravated the power sector’s difficulties.
In its State of Industry Report 2024 released on Tuesday, the power sector regulator said that key issues identified in the report include high electricity costs, systemic inefficiencies, and a growing circular debt. External factors such as rising fuel prices, a high exchange rate, and long-term RLNG supply agreements; etc. have further exacerbated these challenges, driving up electricity costs and jeopardising the sector’s long-term sustainability.
One of the biggest challenges facing Pakistan’s electric power sector is the generation capacity, which is currently underutilised. This low utilisation leads to high electricity costs in the country. By the end of the FY 2023-24, Pakistan’s installed electric power generation capacity reached 45,888 MW including KE, while the average annual utilization during the same period was only 33.88%.
As a result, electricity consumers ended up paying for 66.12% of unutilized capacity, which includes cost of intermittency in case of RE power plants.
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The generation cost, with around 83% share in the overall consumer-end tariff, remains the largest cost component. Optimal utilisation of available excess generation capacity is the key to reduce electricity tariffs. However, despite an installed capacity of 45,888MW, multifarious issues including operational constraints in the transmission sector and governance issues in the distribution sector have hindered best possible utilisation of generation capacity. The underutilisation of power plants result in capacity payments for unutilised capacity, contributing to higher per-unit electricity costs for consumers.
Poor quality of services, high tariff of electricity and reduced affordability for the consumers have stimulated rapid shift towards distributed generation, especially rooftop solar. The negative impact of high cost of electricity on the economy as well as daily life of the people calls for an urgent need for reforms in the power sector to ensure reliable power supply at affordable rates to support economic growth in the country.
The performance of transmission sector, managed primarily by the National Transmission and Despatch Company Limited (NTDC) continues to remain under par. It is faced with extensive challenges such as the lack of a robust constraint free transmission system to transmit cheaper electricity from the southern region to the load centres at the centre and the north, under-utilization of the HVDC transmission line, system overloading, and rising transmission costs. Financial strains from delays in completion of the transmission projects are also pressing concerns.
The report highlights need for targeted investments in grid and transmission line infrastructure and timely project execution to address inefficiencies in the transmission segment to ensure stable and affordable electricity supply.
The distribution and supply segments have also not shown any improvement over the last year; rather, there has been a noticeable decline in electricity sales growth during FY 2023-24. Higher-than-allowed T&D losses and less recovery ratio by Discos have worsened the circular debt crisis. Taking the stock of poor performance of Discos, the report highlights the need for immediate actions to address governance issues in the Discos, minimise losses, and improve the financial health of the distribution sector. Strict enforcement of commercial contracts among the relevant public sector entities is needed to instil discipline and enhance system efficiency. In a nutshell revamping of the public sector companies is more essential to reverse the current downward trend.
Besides high generation cost and inefficiencies in the transmission and distribution segments, the consumer is burdened by high supplementary charges, including taxes, surcharges, and cross-subsidies, which exacerbate electricity costs and complicate efforts to stabilize and reduce prices.
The report also presents a glimpse of Nepra’s regulatory activities during the year in the areas of licensing, tariff, monitoring & enforcement, and consumer affairs. During the year, Nepra focused on enhancing compliance by the licensees. Data exchange portal has been improved for better monitoring of licensees. In addition, fines were imposed on non-compliant licensees for enforcement of the decisions of the Authority as well to penalise the inefficient practices.
Nepra maintained that the share of the public sector in Pakistan’s power sector is quite significant, yet governance and efficiency issues, including regulatory non-compliance by these public entities, are prevalent. The process of initiating and concluding legal proceedings against any violations of applicable regulations is time-consuming. However, it is observed that in most cases, public sector entities, rather than addressing the issue and using it as an opportunity for improvement, tend to delay action by resorting to regulatory reviews, appeals to the Nepra Appellate Tribunal, and litigation in higher courts, ultimately weakening deterrence measures.
In the public sector, many violations are ongoing, and the lack of adherence to regulatory decisions by public sector entities contribute to financial, technical, and regulatory indiscipline within the power sector. The recovery rate of fines is notably low.
Given these challenges, it is essential to address these issues. If improving efficiency within the public sector proves difficult, privatization of these entities or transferring their operations to private management should be seriously considered.
The ongoing efforts for the development of the Competitive Trading Bilateral Contract Market (CTBCM) are a significant step to foster competition in the supply segment and break the monopoly of Discos. Progress on the initiative of CTBCM and bottlenecks in its implementation has been discussed in the report.
While external factors like high prices of imported fuels, devaluation of Pak Rupee and the impact of global issues have certainly had negative impact on the cost of electricity generation in the country there are unabated inefficiencies, particularly on the part of monopolistic entities, making electricity increasingly unaffordable and placing an unprecedented strain on the country’s economic and financial stability.
Key stakeholders, including the Private Power and Infrastructure Board (PPIB), the National Energy Efficiency and Conservation Authority (Neeca), and provincial energy departments have been making, efforts for promoting investment, expanding renewable energy, and improving energy efficiency.
However, more coordinated efforts are essential to enhance the financial health of the country’s power sector.
In another report titled “Annual Report 2023-24” Nepra shared details of its performance during the year including tariff decisions, monitoring, transparency, and issuance of licences.
Copyright Business Recorder, 2024
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