Power sector reforms update

The government of Pakistan (GoP) initiated structural reforms in the power sector under the Power Sector Reform Plan (2010) finalised by the Cabinet Committee on Restructuring (CCOR). Implementation of Power Sector Reform Plan 2010 has been expedited and upgraded under the Power Sector Recovery Plan 2011 headed by Dr Abdul Hafeez Sheikh Federal Finance Minister. The plans are based on the following key pillars:
a) Improved governance structure; b) Supportive legal framework; (c) Financial sustainability;(d)Supply side management; (e)Demand side management; and f)Promote private sector participation in the sector
Update:
IMPROVED GOVERNANCE STRUCTURE BoDs of all nine distribution companies (Discos) and National Transmission and Dispatch Company (NTDC) reconstituted. Hiring process of new CEOs for DISCOs initiated. CEOs for LESCO, IESCO, MEPCO, FESCO and QESCO finalised. BODs for GENCO Holding Company reconstituted. Short-listing of CEOs for GENCOs Holding Company completed for final selection. Dissolution of PEPCO completed on 30th October, 2011CPPA operationalized with a new BoDs.
Business plans developed by Discos and Gencos being implemented technical, financial and management audits of GENCOs and DISCOs completed in March 2011 being pursued in FY12. Strengthening of Ministry of Water and Power through
i) Power Directorate creation and
ii) Consultant support initiated
B) SUPPORTIVE LEGAL FRAMEWORK Nepra Act amendment to empower Nepra to directly notify fuel adjustment tariffs has been passed by the National Assembly and Senate. Nepra being strengthened. New tariff determination mechanism being drafted. Work on the New Electricity Act is in advanced stages.
C) FINANCIAL SUSTAINABILITY Cumulative increase in tariff of 90% since March 2008 including 15.6% increase in FY11 monthly fuel adjustments being passed onto consumers. Tariff rationalisation is ongoing. Tariff differential between Nepra determined and notified tariff which stood at Rs 3.25 per unit in FY10 has come down to Rs 1.26 per unit.
POWER SECTOR SUBSIDY The timely payment of tariff differential subsidy (TDS) is being ensured along with subsidies for KESC and FATA on a monthly basis. All subsidy claims till December 2011 (Rs 56bn) have been disbursed. GoP started FY12 with no outstanding claims of TDS against any power sector company. For FY12, overall subsidy is estimated to be Rs 91-125 billion. Monthly financial planning being implemented for smooth financial flow GST exemption withdrawn for lifeline and agriculture consumers (Rs 10bn budgeted by GoP for FY12). GoP aims to phase out subsidies to power sector which have cost Rs 1 trillion in the last four years.
RESOLUTION OF CIRCULAR DEBT Circular debt refers to the unpaid bills by Pepco to key players especially oil companies, gas companies, IPPs and Wapda.
STOCK ISSUE:
a) Recovery of receivables of DISCOs of Rs 348 billion (31.12.2011) is essential to clear the circular debt against payables of Rs 423bn (30.01.2012).
b) Federal Government is facilitating recovery of Provincial and Federal government departments.
c) Private sector receivables recovery plan finalised by DISCOs .
d) Unpaid power tariff differential subsidy (Rs 301bn) until 30 June 2009 picked up by GoP through PHPL.
e) Stock of Rs 120bn of outstanding TDS for FY10 was picked up by the Federal Government in May 2011.
f) Debt swap of Rs 150bn is being done which would cover sizeable proportion of circular debt.
FLOW ISSUE:
a) Efforts for 100% recovery of current bills are underway along with disconnection of defaulters after 45 days (reduced from 90 days) without any exemption/discrimination. A total of 148,518 disconnections carried out during July-October 2011.
b) Two months security deposit shall be paid by new and defaulting consumers to get a reconnection.
c) Refund of GST on uncollected bills of more than 180 days has been approved.
D) SUPPLY SIDE MANAGEMENT 3,334 MW has been added since 2008.Most efficient plants are being dispatched to maintain the 92 TWh generations. Economic dispatch to conserve fuel is being implemented. Gas Supply to KESC has been increased to improve fuel mix and ensure maximum supply. Change Combined Cycle plants to coal (24 months)
---- Mangla raising completed and project inaugurated. Diamer Bhasha Dam of 4,500MW generation capacity inaugurated
E) DEMAND SIDE MANAGEMENT Line-losses reduced from 20.4% (FY10) to 19.6% (FY11). Loss mapping in each DISCO is in progress to exactly pin-point the losses and their sources to achieve the target of 18.7% losses in FY12. Load Management and conservation measures to save about 1000MW put in place.
F) PROMOTE PRIVATE SECTOR PARTICIPATION Expression of Interest (EOI) for private bidders issued for O&M contracting for GENCOs. GoP is in the process of finalising O&M contracting wherever required for Discos. Work on coal-fired plants has been expedited
IMPACT OF REFORMS: TDS which was estimated to be Rs 256bn was reduced to Rs 140bn in FY11. Line losses reduced to 19.6% (June 2011) from 20.4% (June 2010). The recovery of bills in 2009/10 was 88.5%, which improved slightly to 88.7% in 2010/11.Overall, load shedding has been minimised and unscheduled load shedding curtailed
FUTURE: The goal is that Pakistan moves towards creating a market oriented well-regulated energy sector. GoP remains cognisant that in the medium term, a less oil dependent generation mix, improvements in efficiency, modernising operations and addressing technical issues is the key to sustainable energy sector.
TARIFF INCREASE Reach full cost recovery by FY13
---- Remove anomalies in tariff
---- Cross subsidy to be minimised
---- Essential subsidy obligations be highlighted on individual bills for consumers
---- New additions - 18 Months
425 MW Nandipur
---- 525 MW Chichoki Malian
---- 747 MW Guddu
---- 300 MW Lakhara
---- Commence construction of Daimer Bhasha in FY12
---- Total additions in 18 months
---- 2000 MW - Clearing circular debt
---- 1000 MW - Energy efficiency
---- 1997 MW - New additions
---- 4997 MW = Total impact
(The writer is Director in Federal Minister of Finance)