Power sector: hits and misses 2017 (ii)

The year gone by saw a lot of shake-ups in the power sector. Some highlights have already been covered by this column such as the rising circular debt and the changing fuel mix. Another important development during the year was the shift towards competitive bidding for determination of energy tariffs. This will encourage competition in the power sector and ultimately reduce the cost of electricity for the end consumer.

However, at the same time the government has recently decided to retain “take or pay” long term power purchase agreements for government and CPEC power projects while shifting to “take and pay” mechanism for others. This has apparently been done to reduce the capacity payments in the future which are paid even if the government through the Central Power Purchasing Authority (CPPA) does not buy any power from the project.

This has not been the only move that undermines the aim of moving towards a competitive power sector. The present government has been busy in taking powers from the regulator, National Electric and Power Regulatory Authority (Nepra).

During the year administrative control was transferred from the Cabinet Division to the Ministry of Water and Power (MoWP) in a clear conflict of interest. The government’s rationale for bringing the regulator under its directive could be figured out by the former PM’s assertion that Nepra had started to regulate government institutions instead of the private sector.

But what is the regulator to do. The largest stakeholder in all three sectors i.e. generation, distribution and transmission is the government in itself. And mind you it is also the most inefficient stakeholder as well.

So clipping the regulator’s power when it comes to DISCOs and transmission might be construed as a lack of intention on the government’s part to reduce its role in the power sector. Nepra’s State of the Industry (SOI) 2016 report blamed poor governance as one of the major factors for the abysmal condition and lack of coordination of state-run institutions which are in charge of power and energy affairs.

This lack of coordination was to be solved by the creation of an integrated energy ministry. It was certainly a part of the PML-N’s manifesto for the previous election. However, it was left hanging till the end of their tenure. Still better late than never!

Summing it up, policymakers have to make up their mind regarding the future trajectory of the energy sector in the country. Ideally, the private sector should be encouraged and incentivized to come in transmission and distribution as well and the government’s role should be gradually reduced. Barring this, a financially and operationally sound energy sector will remain an elusive objective.