Power sector still constitutes big challenge

The incumbent government, on taking over the reigns of power in May 2013, made commitments to fix the ailing power sector bleeding the economy and causing misery to people enduring hours of load shedding. Fixing the power sector was made top priority by the government. The tasks included getting rid of the circular debt for good, end power theft, privatise loss-making power utility companies in the public sector and introduce a better fuel mix to make power affordable to people and industry.
After nearly four years of governance, the power-sector circular debt remains unmanageable and has swelled again to nearly the 2013 level of Rs 480 billion on account of the persistent failure in reduction of power losses and increased recoveries owing to poor governance, by those at the helm of affairs who failed to curb energy losses and inefficiencies.
It appears that the incumbent government, which once committed itself to clearing the Rs 480 billion circular debt after coming into power in 2013, is likely to end its innings by leaving behind the same amount of the debt as it started with.
In the meantime, the pending payments to IPPs (Independent Power Producers) escalated to Rs 439 billion by February 15, which may lead to less production of power and its availability on the grid, and consequently the hapless consumers are likely to face electricity shortage in summer due to the non-payment to power plants.
It is reported that the government prepared a circular debt management plan in September 2015 to reduce it from Rs 314 billion (as of end June 2015) to Rs 212 billion by the new financial year ending June 30, 2018, while keeping within the targets of 0.4 percent of GDP for subsidies to the power sector (about Rs 128 billion) and four percent fiscal deficit. It was envisaged that at the end of each month the circular debt would be maintained below the cap of Rs 314 billion. Key to the government plan was increased collection from public-sector power companies by five percent by FY2018 and reduce losses by 1.7 percent. Collection from government customers were to be rationalised and subsidies were to be paid on actual basis and paid according to schedule. Pending payments to some of the IPPs are reported to be strikingly hig., Notably, Kot Addu Power Company (Rs 68.177 billion), Hub Power Company (Rs 64.194 billion), Central Power Generation Company (Rs 62.796 billion), Northern Power Generation Company (Rs 56.747 billion), Wapda (Rs 23.853 billion) and Jamshoro Power Company (Rs 18.288 billion). Then, there are many smaller payments due to other IPPs.
The payments issue to IPPs has a chequered track record. It reached its climax around 2013 when several of the IPPs, failing to get their dues, opted for calling sovereign guarantee while others attempted to seek the intervention of the Supreme Court. The same situation may develop if the sustainability of the IPPs is threatened once again.
As to reduction of power outages in the government's fifth year of governance, the test results will be known this summer.
A recent Asian Development Bank report rated Pakistan's huge power outages as being among the largest in Asia. Pakistan needs massive investment in energy infrastructure as the country endures one of the region's highest numbers of power outages, which cause paralysing losses to industry. The Asian Development Bank said in a report that Pakistan faces 31 power outages in a typical month - a little better than the 51 in Nepal and 65 in Bangladesh. The ADB said Asia, consisting of 45 countries, almost all of them developing, will need to invest $26 trillion by 2030, or $1.7 trillion a year, on transport, power, telecommunications and water supply and sanitation. It said Pakistan had one of the region's lowest electricity generation capacity per capita over the past decade. Contrary to an average 7.4 percent growth rate in Asia, the country's power production remained flat between 2000 and 2012.
At the same time, Pakistan needs to firmly reduce public debt since the country remains vulnerable to shocks, and additional tax measures are needed to realise its full revenue potential of 2.2 percent of GDP by 2019-20. Experts representing various key sectors of the economy have suggested to the federal government to redress the element of unpredictable taxation policies, lack of continuity across provinces and irrational investment policies in energy. The incumbent government has focused on the issue and done well in enhancing Pakistan's power-generation capacity by rolling out projects based on coal and LNG, hydropower and solar.
Loss-making power distribution companies in the public sector were to be reformed through privatisation and restructuring. In the last four years nothing happened.
With this scorecard of deliverables outcome it is not surprising that the circular debt has staged a comeback to the 2013 level, the receivables are mounting, the performance of the utility entities maintains a status quo while the situation of power outages may have improved which will be put to test this summer.
(The writer is former President, Oversees Investors Chamber of Commerce and Industry)