The government has recently announced its decision of moving towards competitive market in the power sector. For this purpose, a new power policy is being formulated and amendments have been made in the regulatory laws. While the transition to the Competitive Electricity Markets (CEM) is appreciable provided it brings dividends to consumers in the shape of greater choice in selection of electricity suppliers, a reduction in tariff and reliability of power supplies. With circular debt of Rs 923 billion on the books of the government entities, subsistence of long-term concession contracts up to year 2045 and loss-making, inefficient and mismanaged government-controlled distribution companies, the CEM is likely to create further chaos, uncertainty and volatility in the prices of electricity. While we are common law jurisdiction, the regulatory law is patterned on US regulatory laws and CEM is being injected with 'Turkish Dose'. A perfect epitome of our 'haywire' approach.
The sudden shift in the policy without any warnings and savings for the existing pipeline projects through an executive fiat without due process of law and sanction of the competent forum of Council of Common Interests (CCI) under the Constitution of Pakistan 1973 (Constitution), in and by itself, a nullity in the eyes of law as it takes away the established, vested and accrued rights of the investors and further in breach of provisions of Constitution (especially after the 18th Constitutional Amendment), which envisages a greater provincial role. While the stakeholders in the power sector are not letting go their vested and guarded interests in the form of greater financial perks and privileges obtained without any regulatory scrutiny, non-disclosure of mandatory public information and discriminatory policy of distributing favors and fears amongst the investors is playing havoc with the fundamentals of the power sector and is likely to have 'drag on' effect on the economy, in general and, CEM, in particular. The 'quid pro quo' of higher financial perks is greater subservience and erosion of independent merit based decisions.
The purported surplus in the generation segment, if at all, is offset by the dilapidated transmission and distribution network. Coupled with this reeling infrastructure, corruption and inefficiency has resulted inadequate and non-reliable supply of electricity to consumers with high losses and unbearable tariff which has a 'knock on' effect on the industrial sector due to which its growth has stymied and witnessed a stifled export sector. Every run of five years, from Year 2007 / 2008, the Government piles up the circular debt and clears it abruptly in one go without analyzing the root causes of its origin and violating the principles of transparency. During the process of accumulation of circular debt, the government enters into payment disputes with the private generators, expends phenomenal amounts of public money in international arbitrations, which are invariably lost due to weak defenses and lack of understanding of power sector specific characteristics that entail financial, technical and legal aspects of the power system. Now, reportedly the government is again preparing to clear the circular debt of around Rs 520 billion which will be passed on to the consumers without any regulatory and transparency checks and without any 'lessons being learnt'. Any future clearance of the circular debt must be subjected to the transparency, due diligence and regulatory prudence. Without adequate centralized planning, capacity / fixed payments are being paid even to the base load plants like RLNG power plants in addition to the financial guarantees on the 'take or pay' basis, which is suicidal. Despite shortage of electricity in the system, power plants have been made to remain idle and yet eligible for heavy fixed capacity payments. This emanates from the fact that operation of power plants is discretionary by the power procurers on subjective and vague criteria which has been shrouded and wrapped without open examination and away from 'public eye'.
Every now and then, new entities and layers of governance are raised all at the heavy cost of the taxpayers' or rate payers' money without regulatory oversight in the name of unbundling, oversight and or administration of market mechanisms. Although, the public utility companies in the generation, transmission, distribution and market business are established under the companies' laws, their governance is not compliant with 'Corporate Governance Rules' and instead are run by the administrative ministry, without any sanction of law. It's the 'old wine in new bottles' and with the same devastating effect albeit at 'cascading costs'.The regulatory framework is marred by regulatory capture, inconsistent laws and the policy directions of the Government are followed by the regulator without bearing 'consumer interest'. The passing of, Net Hydel Profit (NHP), unaccounted distribution losses in the consumers tariff and implementation of market mechanism structures are the hall marks of such subservience which is at the cost of the consumers for whose safeguard and protection, it was created. While the powerful private sector and the Government, churn and spurn, their way through the maze, it is the consumers, the ultimate payers of electric power services, who suffer the most in form of higher tariffs and unreliable supply of electricity.
(The writer is a practicing barrister in the corporate and energy sectors)
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