Power emergency

It has been reported that National Electric Power Regulatory Authority (Nepra) has asked the Prime Minister to declare a national power emergency and take drastic steps for scaling down about Rs 1.93 trillion circular debt which, according to the regulator, is significantly higher than reported by the Power Division. The regulator reported that circular debt had increased by about Rs 492bn during the fiscal year 2018-19 at a monthly average of about Rs 41-42 billion, as opposed to Rs 10-12 billion per month being reported by the power division.To scale down circular debt Nepra is reported to have put recommendations to the government, notably: - A ban on labour unions for ensuring and enhancing recoveries for and from distribution companies;

- No imported fuel-based power projects;

- All power companies should be switched to total regulatory compliance-based regime and their managements and boards of directors should be fixed on war footing to improve governance;

- Closure of the public-sector generation companies;

- Loan restructuring of Rs 53 billion per year for eight thermal power plants, including three LNG-based, three coal-based and two nuclear power plants;

- Defer about Rs 40 per year dividend and return component of public sector plants and Rs 35 billion per annum net hydel profit being collected from consumers for payment to provinces;

- Inefficient generation plants in the public sector should be closed for a Rs 10 billion saving;

- Abolishment of non-electricity taxation burden of Rs 250 billion of which Rs 175 billion is going to circular debt;

- Negotiations with Independent Power Producers (IPPs) for mark-up on delayed payments, as 1 percent reduction would provide a saving of Rs 1 billion per year for every Rs 100 billion payable. At present, about Rs 600bn delayed payments are currently payable to the IPPs as of Dec 31, 2019;

- Fast-tracking the implementation of renewable energy policy;

- Renegotiation of LNG contracts for price opening in 2025 and quantity commitments by 2030;

- Thar coal price determination should be determined by the federal government authority and not by the Sindh government;

- Promotion of big and micro-hydropower projects in Khyber Pakhtunkhwa, Punjab and Azad Jammu and Kashmir besides facilitation of off-grid solutions for rural electrification and net metering;

- Early privatisation of loss-making distribution companies and installation of pre-paid meters and outsourcing of meter reading and bill collection responsibilities;

- Industry should operate at night to reduce peak;

- Special economic zones should be developed on priority to increase power demand; and

- Wire business of distribution companies should be bifurcated and loss-making feeders should be outsourced.

The regulator has well tabulated the above wish list of which much is basic and well known and some of it already tried with no tangible results.

That the circular debt issue is profoundly complex and serious is a fact. The story of circular debt emerged from the tenure of last PPP government, which witnessed the influx of expensive fuel-based power plants, including rental power plants. They were awarded attractive tariffs. This was abetted by a seriously flawed governance in the power sector. In the last one decade the size of circular debt swelled from Rs 300 billion to the present level of Rs 1.9 trillion.

Successive governments attempted to address it as a financial issue. It was never a financial issue. If it was so it would have been resolved by now.

In one word, it's the issue of governance and governance alone; the consequences of which are mismanagement, theft, receivables, line losses, well-entrenched fraternity of vested interests across the entire power sector supply chain starting from fuel procurement to supply of electricity at consumer end.

Unless the whole power supply chain is investigated a solution to circular debt is unlikely to be found. The starting point is to conduct the forensic audit of the full power supply chain through independent auditors, inclusive of audit of procurement and delivery of fuel to power plants, the conduct of the IPPs, power generation and distribution companies in public sector, consumer behaviour and more.

Amazing findings are expected to emerge out of such an audit which can be a realistic basis to structure a strategy leading to a viable and durable solution to this decade-old issue of ever-rising circular debt.

The task is not an easy one. It poses challenges and resistance at every step. But this exercise is inevitable if a viable and permanent solution is to be found.

(The writer is former president of Overseas Investors Chambers of Commerce and Industry)