The discos’ problem

The power distribution companies leaked a cumulative loss of Rs209.5 billion in FY19 on account of Transmission & Distribution (T&D) and billing collection, as per the latest Performance Evaluation Report released by Nepra. Mind you, this is the loss based on potential revenue incorporated in the tariffs, and not the actual loss, which runs much higher. That is because the power regulator allows no less than 16.2 percent as part of tariffs on account of T&D losses.

The actual T&D losses in FY19 stood at 17.92 percent, breaching the target by 1.74 percentage point, which then translates into a loss of Rs37.87 billion. Electricity worth no less than Rs352 billion was lost to T&D losses in FY19 alone. Let that sink in. Of that, more than Rs300 billion is already part of tariff. The actual loss on T&D over and above the tariff allowance is a very manageable Rs38 billion.

Kudos for that – or perhaps not. It is appalling that the T&D losses over the past five years have refused to improve. Status quo has been consistently observed as most discos religiously stick to significantly high T&D losses. The bad performing ones have remained bad or gone worse. The better performing ones have largely showed there is not much room for further improvement.

More trouble is caused by the breach of recovery targets by discos which are comfortably missed by over 10 percentage points. The regulator makes no allowance for any losses on billing collection, assuming 100 percent recovery rate. Needless to say, that gives birth to gigantic losses – significantly bigger than those caused by T&D losses.

Qesco remains the biggest culprit on the recovery front, surprisingly followed by one of the “better” performing IESCO. This goes onto explain why the picture should be viewed in totality. The loss of Rs172 billion on account of missing the collection target by 10.7 percentage point – it 4 times bigger than the impact of T&D losses, and at least 10 times as less undermined.

The fact that such a significant portion is allowed in T&D losses as part of consumer tariff, should not be lost on anyone, and should continue serve as a reminder of how plagued the whole system is. No amount of reforms aimed at negotiating tariffs will yield the desired outcome, unless the discos’ real shortcomings are addressed on war footings.