No commensurate improvement in power supply despite 80 percent rise in tariff since 1980

Private Sector Development Task Force (PSDTF) of Planning Commission (PC) has observed that there has been no commensurate improvement in quality of electricity supply or service despite 80 percent increase in power tariff since February 2008 and recommended to pass-on tariff calculated by National Electric Power Regulatory Authority (Nepra) to the consumers enabling power firms to make payments.
The Task Force has also recommended decentralising NEPRA and empowering the provinces to set electricity prices independently. The Task Force has recommended elimination of circular debt which has had the consequence on a number of independent power producers reducing their generation or shutting down their operations altogether.
In its report launched on Monday, PSDTF has said that the Pakistani economy has suffered badly as a result of the severe shortages of power that has caused several important urban and industrial centres to go without electricity for a number of hours every day. The Lahore based Institute of Public Policy has estimated the cumulative cost to the economy of power shortage at 5 percent of GDP in 2008-10. The specific recommendations include the following:
(i) eliminate the circular debt which has had the consequence of a number of independent power producers reducing their generation or shutting down their operations altogether. Though settling the debt will have the effect of increasing the fiscal deficit, it would be acceptable if it does not reappear. Traditional defaulters should be told that power supplied to them will be cut unless they remain current with their bills. This action should be taken in the 2010-11 Budget; (ii) Pass on the tariffs recommended by Nepra to the consumers. This will also mean that these companies will remain current in making payments to Wapda and other generators; (iii) adopt a strategic and action programme oriented for increasing the private sector's role in energy through increased participation in generation including hydel power and distribution; (iv) the provinces should be permitted to generate power up to 1000 MW per plant using their own resources; (v) they should be allowed to trade power thus creating a power market in the country and decentralise Nepra and empower the provinces to set electricity prices independently.
The Task Force has said that the priority of course is power, as more than 85 percent of firms thought electricity supply was their number one issue in the country's investment climate. This was the case in 2007 and the situation has only worsened since then. The problems facing the power sector are multi-dimensional. Despite 80 percent increase in tariffs since February 2008, there has been no commensurate improvement in quality of supply or service and the sector's financial deficit has not been significantly reduced.
The Government understands that it needs to address four priority, inter-related issues: (i) the investment deficit in power generation and affordable fuel mix, (ii) the financial deficit in the sector, (iii) the service quality and (iv) the sector's governance issues.
In terms of generation, the shortfall has reached up to one third of peak demand in recent years, resulting from lack of investment in all segments, generation, transmission and distribution.
In addition, the trend for fuel mix has been adverse since gas is being diverted to other uses and captive power generation based on fuel oil is up to three times as high as for gas. Hydro power as the share of hydro in the share to total generation has declined from 70 percent in the 1980s, to less than 35 percent now. And, as mentioned, tariffs still do not cover costs despite the large increases over the past 2 to 3 years leading to a build-up of circular debt once again. Adding to the financial deficit is the fact there are high levels of losses, significant theft and low management efficiency at the distribution level with distribution companies collecting only 70 percent of receivables in some cases. All this is possible due to the sector's governance where there are no accountability for spurring or monitoring reform, tariff determination by Nepra does not get notified by the Government and there is little in the way of public information on the sector.
In terms of the way forward, the government has been pursuing many avenues, none with any significant success. For example, in addition to removing untargeted power subsidies - itself a significant but necessary move - Pepco, the body entrusted with managing the transition of Wapda from a bureaucratic structure to a corporate, viable and productive entity, has been wound up in favour of an independent company set-up. The Government also decided to sell 5-10 percent of the shares in power distribution companies to the general public and manual meter readers were dismissed. Plans are being considered to make all distribution, generation and transmission companies fully independent to take commercial decisions based on a change in management and a sale of their share through the stock markets, with the Faisalabad and Islamabad Electric Supply Companies being the first to be taken to the stock market for initial public offerings.