02082016Mon
Last update: Mon, 08 Feb 2016 07am

Power sector woes: Is the government lying?

Unscheduled and unprecedented load shedding as well as severe water shortages played a major role in hundreds of deaths in Karachi this week past. And the rest of the country too seems to be labouring under prolonged loadshedding - be it scheduled or not.

The response of the Ministry of Water and Power that was echoed by the management of K-Electric was, in a nutshell, as follows: generation has improved and transmission capacity has been strengthened. The problem is the rising mercury and Ramazan is fuelling demand. And as residents of poor areas, where violent protests are being held, do not clear their electricity bills therefore their electricity as, per government policy directives, is shut down and cannot be classified as unscheduled loadshedding. The question is how is it that the government can claim successes and yet the number of hours of loadshedding has not declined over the past two years?

The clarification, explanation or defence by the Ministry of Water and Power as well as K-Electric is largely premised on the assessment of actual demand by these entities and actual supply. Supply is not easily manipulated for the simple reason that it can be independently verified. However, demand can be manipulated which allows the government to claim a shortfall lower than it actually is. The Water and Power Ministry had put up a daily demand and supply monitor in a public area within the Ministry, where in any case entrance is restricted, but after a Business Recorder report indicated that the data released by the Ministry officially did not gel with the data on the monitor it was summarily removed and at present there is one monitor in the Minister's office and another in the office of the Secretary; so much for transparency!

Be that as it may, the PML-N government has claimed improvements in governance of the Water and Power Ministry through implementation of three policy measures. First, an increase in generation since it took over power. A look at the data presented by the government's Economic Affairs Division in its annual publication Economic Survey 2014-15 indicates that installed capacity was 23,048 MW between July-March 2013-14 and 23,840 MW in the comparable period of 2014-15. Disturbingly the same table reveals that generation during July-March 2013-14 was 73,435 GW/h which declined to 71,712 GW/h in the comparable period for 2014-15. So while installed capacity rose by 792 MW actual generation declined by 1723 GW/h - so much for inaugurations amidst much fanfare of Nandipur project.

Second, given the claim of installed capacity of 23,840 MW in the outgoing year and peak demand of under 20,000 MW even during the heatwave (not counting suppressed demand) the question of governance in general and the sustained failure of two democratically elected governments to deal with the circular debt in particular surfaces. The PPP led coalition government parked the circular debt that it inherited in a specially created holding company but was unable to implement governance reforms to ensure that it did not resurface. The PML-N government adopted a similar policy at the outset and eliminated the circular debt it inherited through commercial borrowing but again has failed to contain the resurfacing of the circular debt which is at present around 300 billion rupees. Needless to add, the interest payable on borrowings that the two governments undertook to eliminate the circular debt is part of our tariffs. The circular debt creates severe liquidity problems for the sector and periodically even disables Pakistan State Oil (PSO) from opening letters of credit.

Thirdly the PML-N government claims that the price of electricity has declined since it took over power and cites the recent decline in rates announced by the Prime Minister as proof positive. There is no doubt that rates have declined recently due to a fall in the international price of oil, a major input of our power sector, even though the entire decline has not been passed on to the consumers to create fiscal space which can be defined as enabling the Finance Ministry to meet its budget deficit target agreed with the International Monetary Fund. Economic Survey disturbingly reveals that electricity tariffs in 2012-13 (the last year of the tenure of the PPP led government) were lower than at present for most categories of consumers - and this in spite of the fact that in 2012-13 international price of oil was considerably higher than in 2014-15 (with oil prices having fallen by over 60 percent in 2014-15).

A detailed table of variable charges levied by different distribution companies is attached; however, a few comparisons are highlighted: (i) residential tariff for those using up to 50 units was 3 rupee per unit in 2012-13 raised to 4 rupees per unit by 2014-15 (a rise of 25 percent); those using 101-300 units in Lesco system paid 9.27 rupees per unit in 2012-13 raised to 10 rupees per unit in 2014-15, for Pesco the comparable figures are 15.5 rupees per unit raised to 16.2 rupees per unit, Gepco 13.55 raised to 16.9 rupees per unit though inexplicably Hesco and Qesco witnessed a decline - from 15 down to 12.5 rupees per unit and 13.2 to 12.5 rupees per unit for the comparable period; the rates for peak and off peak hours were also varied; (ii) commercial rates (load less than 5kW) rose from 15 to 17.5 rupee per unit for Lesco, and rose for all discos except Pesco which witnessed a decline from 19.5 to 19; all consumers in all discos witnessed a rise where sanctioned load exceeded 5kW; and (iii) industrial rates rose the highest in all discos as noted in the table.

In its defence the government can credibly argue that the tariff has risen due to other factors including a rise in the cost of operation and maintenance, payment of interest on the more than 400 billion rupee loan incurred by Ishaq Dar to eliminate the debt in 2013, the rising costs of other inputs (including labour/salaries) as well as the reliance of the government on tax collections from the fuel and power sector given its continued inability to render the tax system more equitable and improve the performance of the Federal Board of Revenue. Higher tariffs today can therefore be attributed to government policy - more at the level of the Ministry of Finance than with the Ministry of Water and Power.

What is also unfortunate is that the incumbent government has simply not prioritised the power sector as the recipient of public sector development programme. Roads, the Sharif's priority subsector, received 109.4 billion rupees in 2014-15 while power sector received only 49.2 billion rupees. In 2015-16 the power sector is budgeted to receive 112 billion rupees while roads again would receive a higher amount of 159.6 billion rupees.

To conclude, the performance of the sector during the tenure of Khawaja Asif as the Minister in charge with his understudy Abid Sher Ali has been as good as the sector's performance during the tenure of the PPP-led coalition government. Reliance on borrowing and raising tariffs, failing to formulate a focused approach to ensure that the circular debt does not resurface (in spite of virulent verbal attacks launched by Abid Sher Ali against power thieves and linking theft with number of hours of outages) and a Finance Ministry that inexplicably attempts to distance itself from the circular debt continue to be evident in this sector and therein lie the lies as well as the problem.





Copyright Business Recorder, 2015