National Electric Power Regulatory Authority (Nepra) has accused National Accountability Bureau (NAB) of interfering in its jurisdiction due to which the sensitivities of officials were hurt. These accusations have been made by the regulator in its State of Industry Report 2018-19, a tone similar to what is being taken by the country's top bureaucracy, businessmen and investors at different fora. One of the Director Generals Nepra, Insaf Ahmad has been detained by NAB and is under trial. This issue has already been raised at the level of Prime Minister.
According to the report, Nepra states that NAB's role needs to be mentioned in the context of the regulator. Former senior officials of Nepra are also facing investigation which has sent a negative message to incumbent officials. "Almost all the projects on which Nepra had made determinations in the past have been questioned by NAB, and the way the investigations are being conducted, it has completely stifled the morale of Nepra professionals. The matter in essence has come to the jurisdiction of Nepra and the boundaries beyond which NAB may not intervene. A holistic approach is the need of the hour so that confidence of the sector in general and that of Nepra in particular is not unduly hurt," the regulator added.
Nepra has decided to review the returns offered in the power sector and prepared a concept paper for determination of the rates of return for the power companies which provide a basis for determining the IRR for various technologies, value chain of power sector i.e. generation, transmission and distribution and tariff regimes (cost plus, upfront). The basic objective is that the IRR needs to effectively account for specific risk and return matrix and its adjustment for a particular technology. The consultative process has been started by the Authority on the following proposed returns:
Pakistan initiated a reform process in early 1990s to bring efficiency in the power sector, however apart from addition of generation capacity and improvement in power supply position at different times, the sector still suffers from unreliable power supply due to transmission and distribution system constraints and other inefficiencies. The electricity consumers are still getting expensive electricity due to external and internal factors. The new government has major challenges at hand to revive a collapsing sector.
Due to heavy dependence of power generation on imported fuels, the prices of imported fuels are among the major external factors, which directly impact the cost of electricity generation. With the rapid depletion of indigenous gas at subsidized price, the space for other options is limited. The internal factors also continue to add to the inefficiencies, leading to expensive energy mix.
The Federal Government being the owner of Gencos in the public sector has not decided about the fate of inefficient Gencos. The constraints in transmission and distribution networks have forced the system operator to underutilize available generation capacities and curtailment of power supplied by conventional fuel and wind energy power plants. On an overall basis, XW-Discos have failed to reduce their T&D losses. The Discos reported actual losses of 18.6% in the FY 2013-14, showed a slight dip to 17.95% in FY 2016-17, whereas in FY 2017-18 reported losses of 18.32%. The recovery of billed amount also shows similar trends. The actual recovery ratio was at 89.11% in FY 2013-14, which improved to 94.45% in FY 2015-16; however, the position again deteriorated to 87.71% in FY 2017-18.
As a result, the power sector circular debt is touching Rs 1.2 trillion mark with continued addition of approximately Rs 200-250 billion annually. The Federal Government has contemplated to stop incremental additions to circular debt through certain measures like budgeting subsidy amounts, notification of Nepra determined tariffs and other measures to control losses.
However, efforts to improve through such accounting measures, so that balance sheets of Discos show a healthy position, would not suffice. Fundamental issues of governance, capacity and induction of technological improvements in operations are to be addressed forthwith.
Performance of Discos and Gencos, throughout this period of more than two decades, calls for their due independence, as continued centralized control, has defeated the main objectives of the reform process. The regulator notes that under the given scenario the existing setup would not be able to deliver, therefore it is recommended that structural changes like privatization of Discos must be given serious consideration to save the sector.
With the amendments in the Nepra Act in April 2018, an entirely new regulatory regime has been introduced. It is however noted that due deliberations were not done before approval of the Amendments. Requirement to maintain a uniform tariff throughout the country and certain new concepts in the Act are not consistent. Furthermore, work is being carried out to develop a competitive market model, which it appears is not based on comprehension about the ground realities in general and capacity levels of the stakeholders in particular. There is a need to identify gaps in the existing working of the relevant departments and their ability to undertake any sort of potential market mechanism. The Regulator observes that any market model leading to centralization of operations should not be considered. In this respect, a model which may be very rudimentary but which promotes opening of the sector may be encouraged. Sales-growth policies are needed at this time when the capacity payments are expected to rise every year. Therefore, all such measures to bring paying consumers in the system, are to be taken, instead of just adopting regressive approaches. For instance, it is not enough to just focus only, on carrying out loadshedding in areas having high losses; rather other measures to effectively reduce losses should be given more importance, for implementation. The present approach would not result in long-term viability of the sector, as the consumer-base who pays the costs of the system will further squeeze.
The recent efforts of the new government to reduce DISCOs' T&D losses, by directly targeting high loss 11 kV transmission lines (feeders) are fully supported and it is recommended that the approach may be extended in all Discos so that overall loss reduction and sales expansion can be effectively realized expeditiously. The Regulator also appreciates the policy of the government to set specific and high targets for renewable energy in the system. The implementing agencies however, should, not only fully own such stated policies, they should be geared up to take necessary steps and develop support mechanism to undertake these, so that conflicting signals are not sent to stakeholders. The government policy to introduce "net-metering" and "wheeling" has received favorable response from relevant stakeholders. The Regulator supports continuation of these, over the coming years so that competition is encouraged in the sector. In the context of expensive energy mix, it is also proposed that the government may revisit earlier decisions to import power from Central Asian States, as it is not expected to replace any other expensive energy generation, whereas it would add to the capacity payment requirements. It would also require National Transmission Company for timely development of transmission infrastructure thus adding to already burdened company in terms of human and financial resources. The detailed statistics and data provided on the power sector in the State of Industry Report 2018, besides being a source of information, would also be useful for the decision makers as in the past.
Public Sector Gencos are contributing to expensive energy production due to their inferior efficiencies. Nepra has decided to not renew the licences of those power plants having worst performance levels. Import of power from Central Asian States is not expected to lower the cost of energy mix while its energy supply may not be attractive for the system due to seasonality in the availability of power. Inconsistent data reporting and quality issues of information by Discos, NTDC and K-Electric have been noted in the important areas of their power supply and demand projections. The Transmission Sector (NTDC system) has shown improvements to a certain extent as constraints specific to different areas have been removed, notably around Khyber Pakhtunkhwa and 500 kV links for Port Qasim Coal Power Plant. However, constraints for evacuation of wind energy from Jhampir corridor continued to be experienced. Power production from newly constructed Guddu Power Plant has to be curtailed due to transmission constraints.
Right of way Issues and "Stay Orders" by courts have been noted for delays in timely completion of transmission line projects. In the absence of National Electricity Policy and Plan and the Rules to be framed by the Federal Government, pursuant to NEPRA Amendment Act, 2018, clear goals for the sector are not available for the stakeholders to move forward. Similarly, transition from the existing regulatory regime to the competitive market may not be completed without National Electricity Policy and Plan and supporting Rules and Guidelines. Circular Debt continued to accumulate to around Rs 1,000 billion due to inefficiencies of Gencos , Discos ' inability to achieve targets for T&D losses and recovery ratios as allowed by NEPRA and other governance issues like delay in tariff notification. Continuation of centralized control of Discos and public sector Gencos, has been noted as one of the main reasons, for not only the substandard performance of these entities, but also a major factor for accumulation of circular debt. For the past couple of years CPPA-G's stance has been noted to be inconsistent with the long-term vision and stated policies of the Federal Government. The positions of provincial bodies and CPPA-G have also been quite opposite to each other. The state of affairs especially for the renewable energy based projects has created chaos in the sector. Due to such inconsistent policies, more than 1,850 MW of renewable energy based applications are pending with Nepra for final determinations. CPPA-G is treading a tight rope, as its conduct would lead to irreparable damage to the power sector over the long run.
Governance issues have been noted in the performance of K-Electric. KEL failed to anticipate impending gas depletion and to take any remedial measures in the absence of long-term gas supply agreement with SSGC.
In order to lower the costs of expensive energy mix, the Federal Government is expected to take an early decision on the fate of inefficient Gencos. The Regulator considers that inefficient power plants are needed to be retired on priority. Federal Government may revisit the power import from Central Asian States in view of the higher tariffs and other requirements for constructing transmission network.
To reduce impact of idle capacity on the overall tariff, Federal Government is recommended to carry out a thorough analysis of any requirement for the import of additional power by K-Electric from NTDC system. Nepra considers that it will be in the interest of the overall system, as it will help improve the utilization of power plants, whereas it will also provide continuity of power supply to K-Electric consumers in the short to medium term.
Sales growth policies are to be vigorously pursued by bringing more consumers to the Discos network and encouraging existing paying consumers through reliable power availability. Loadshedding policies must be targeted only to those who are not paying. Separation of feeders may be considered to isolate paying and non-paying areas. Regressive policies to impose loadshedding on larger areas would result in higher tariffs for the rest of the paying consumers.
Discos, NTDC and K-Electric have been urged to revamp their data reporting by including necessary quality checks and preferably ISO certification so that consistent and accurate information is provided to the regulator and other stakeholders.
However, KEL has significantly reduced its Transmission and Distribution (T&D) losses as compared to Discos. Prior to 2009, KEL's T&D losses of 35.9% were at par with Hesco's and Sepsco's T&D losses. Through a combination of loss reduction projects and initiatives such as use of Aerial Bundled Cable (ABC), the company has mitigated these losses by 15.5% points to 20.4% in 2018; whereas, T&D Losses for HESCO and SEPCO by the end of 2018 continue to loom over the same range of 29.8% and 36.7%, respectively. Overall, Discos have experienced an increase of 1.62 percentage points in their T&D losses, from 16.7% in 2009 to 18.32% in 2018. In terms of Aggregate Technical and Commercial (AT&C) losses, KEL's AT&C losses have reduced from 43.2% in 2009 to 27.5% in 2018 showing a decrease of 15.7% percentage points; while Disco's AT&C losses have increased by 0.46% percentage points between 2009 and 2018. KEL has been able achieve 9% growth in its consumer base from 2016 to 2017, while from 2017 to 2018 it achieved a 6.5% increase in its consumers. The Discos added 4.3% consumers from 2016 to 2017 while such increase was 5.6% from 2017 to 2018. It also reflects that since Discos are not able to increase their consumers; their energy base is not adequate to absorb incremental capacity costs due to addition of generation power plants in the system.
Nepra has recommended that the Federal Government should explore the option of privatization of Discos by encouraging private investment, making them financially self-sufficient and thereby, reducing the burden on national exchequer.
The report further states that NTDC must continue its work on the strengthening of its network so that constraints are removed expeditiously. Similarly, the overloading of its transformers should be addressed so that further hotspots are not introduced. Its planning and monitoring functions are expected to be alert to timely notify about such conditions. In order to address litigation and "right of way" issues, special energy courts may be introduced in the country.
The Regulator supports the efforts of the Federal Government for targeting the high loss 11 kV feeders for bringing down T&D losses in Discos. The approach needs to be extended to all Discos. Automatic metering at different voltage level to track and account for electricity flow should also be initiated in all Discos as early as possible.
The existing setup, with PEPCO assuming central control, is not capable of delivering the necessary improvement in the system and controlling accumulation of circular debt. For arresting circular debt, the accounting measures only, would not be enough and structural changes are required to be taken. In this respect besides allowing due independence as foreseen under the 1992 power sector reform plan to Gencos and Discos, total privatization or public-private model may be explored by the Federal Government.
CPPA-G is urged to align its position as per the policies and objectives of the Federal Government. Its response to all issues must reflect credibility with depiction of a responsible organization. Support of provincial bodies is also critical, therefore for the sake of smooth functioning, overall long-term objectives of the sector are to be kept in view.
CPPA-G is required to take into view ground realities, preparedness and capacity levels of the stakeholders for development of market model for the power sector. The model is recommended to be simple and a homegrown solution rather than duplication of models being practiced in other countries, the report concludes.