Once again the World Bank (WB) is reported to be currently working with the government to invite private sector participation in the distribution sector, starting with the best-performing power distribution companies (Discos), with the hope that the success of this initial initiative could pave the way for the private sector participation in under-performing Discos notwithstanding the fact that the Discos’ poor financial health remains a significant barrier.
On the other hand, an Asian Development Bank (ADB) report on the power distribution strengthening project emphasises that to attract private investment and ensure the success of private sector participation and addressing these underlying problems within the Discos will be critical.
Much of both the said observations and line of action are much of the same as were previous many similar endeavours.
The role of the World Bank, International Monetary Fund (IMF), and the Asian Development Bank (ADB) in Pakistan’s power sector, particularly since the unbundling of the Water and Power Development Authority (Wapda) in the early 2000s, has been pivotal.
The World Bank has been a significant partner in financing and advising the energy sector reform in Pakistan.
The IMF has advocated for structural reforms to address issues such as circular debt – the accumulation of unpaid bills between power producers and distributors, which has plagued the sector. It pushed for privatization efforts and better governance in energy corporations
The ADB has played a crucial role in financing and supporting energy projects aimed at improving access and reliability in Pakistan’s power sector. The ADB has funded numerous projects targeting the expansion and rehabilitation of power generation, transmission, and distribution facilities. Significant projects include investments in hydropower and renewable energy generation.
The process of restructuring the power sector of the country started with Wapda, which was labelled as a white elephant and difficult to be governed in the public sector and unable to effectively meet the growing energy demands of the country. The objective unmistakably was to move the power sector from public domain to the private sector - which is in line with the global trends, which proved successful, including in India. In Pakistan, however, it has not worked out in public interest.
In 1997, the GoP unbundled the Power Wing of the Wapda into four thermal generation companies (Gencos), one National Transmission & Despatch Company (NTDC), and 10 Discos, for subsequent privatisation of the unbundled Gencos and Discos. Hydropower assets remained with WAPDA. The National Electric Power Regulatory Authority (NEPRA) was also set up in 1997 with the responsibility for licensing, determining tariffs, creating standards, and monitoring sector performance. Electricity distribution licences were issued to the DISCOs by NEPRA in 2002 for a 20-year period.
The first stages of reform aimed to attract private investment into power generation to address growing supply deficits.
The first to emerge on the landscape of Independent Power Producers (IPPs) was Hubco. It was funded by number of foreign and local lenders, including $465 million loans facilitated by the World Bank-funded public-sector energy development fund. Subsequent IPPs were established using the blueprint of Hubco - which was seen to be much in favour of the IPPs, at the cost of their consumers. Subsequent developments proved right all those who raised apprehensions.
Moving fast track to 2024, the result on ground is that the Discos in Pakistan are running significant financial deficits, with nearly all reporting losses in FY23. High losses and poor collection efficiency for supplied electricity drive these financial challenges. In FY23, several Discos reported collection rates above 90pc, while half of the Discos demonstrated alarmingly low recovery rates, including QESCO, SEPCO, and the HESCO.
The aimless mushrooming of IPPs jacked up the generation installed capacity to 42,000 MW while the usage is less than half of it. The tariffs are unaffordable for the industry and businesses. While capacity payment to IPPs is unsustainable, the balance sheet of IPPs records double-digit profits. The accumulation of circular debt has continued to plague the sector, leading to liquidity crises for the entire energy sector and is threatening the economic and fiscal sustainability of the nation.
The privatisation process of Discos is being routinely and conveniently postponed. One of the main conditions spelled out by the IMF in its ongoing bailout package is the privatization of Discos. There is slow-peddling on it and it is unlikely that anything meaningful will happen on this account within the tenure of the current IMF programme.
In short, the power sector of the country is much too much messed up, rudderless and the energy managers of the country are clueless to resolve the complex issues and move the sector out of the crisis.
Notwithstanding the fact that the responsibility of the implementation of policies rests with the government, it, nevertheless, brings into question the role of WB, ADB and IMF in having their advisories and reports that are issued one after the other in pretty much quick successions. The lenders are required to step up pressure on the government in order to ensure the implementation of their advisories and reports. Understandably, it must be frustrating for these agencies to see things worsening on ground rather than improving. An adviser presumably is at his best when he sees his advice put on ground and promising results achieved.
The power sector of the country is riddled with mis-governance, incompetence, vote politics, vested interests, and above all, lack of will or incentive to change and reform. These irritants are not likely to be removed anytime soon. And unless they are resolved no engagement of WB or similar is likely to deliver any tangible results.
Copyright Business Recorder, 2024