Energy sector challenges

Prime Minister Imran Khan, while chairing a meeting this week to review progress of reforms in the energy sector, is reported to have expressed his grave concern at the negative impact of past agreements made with IPPs that have resulted in expensive power and circular debt. He has made it clear that the energy sector in the country is facing a severe crisis.

The Prime Minister observed that the common man and the industrial sector had been burdened with the agreements of the past for costly power generation, while on the other hand, circular debt kept on ballooning due to subsidies granted for provision of affordable electricity that adversely impacted the national exchequer. The energy sector is indeed in a severe crisis. We are generating world's most expensive electricity which cannot be afforded by the common man or industry. Ever rising power tariffs and escalating circular debt have crippled the state of economy.

Earlier this week, the federal cabinet received a presentation from Power Division which apprised it about a number of measures planned to contain the increase in the circular debt and curtail capacity payments to independent power producers (IPPs).The proposed plan is reported to include eight drastic measures aimed at bringing down the circular debt from the projected Rs1.3 trillion by 2023 to Rs620bn. The proposed measures include power sector reforms, re-negotiations with the IPPs and closing down of inefficient IPPs. Until next year, 1,800MW IPPs will be closed down and the total projection is 4,000MW until 2023. The government has also planned to bring reforms within the government-owned power producing plants and Wapda plants. It has also been under consideration to convert the agriculture tube wells in Balochistan to solar in collaboration with the provincial government to reduce the cost. These measures are by no means drastic, but are routine administrative and technical ones and should have been taken long time back.

If the energy policymakers are just banking on these measures to curtail the circular debt from the projected Rs1.3 trillion by 2023 to Rs620bn, it will never happen. It's like prescribing an aspirin for a disease that requires a major surgery for cure. The issue of affordability of electricity and mounting circular debt is a highly complex one that has spun out of control due to years of mess up by successive governments with random influx of IPPs driven largely by vested interests and political influences, incompetence of public sector enterprises and regulators whose collective conduct has resulted in unaccounted for transmission line losses, mounting receivables and pilferages.

The oil, gas, and power sectors come into play severally and jointly (they are inter-linked) when affordability and circular debt are under focus. The figures of gas theft are mind boggling as these are more severe than those of power theft. Unaccounted-for-Gas (UFG), which is the difference between total gas purchased and total gas sold and billed, is more than 10% but may go all the way to 60% in some regions and business sectors.

The circular debt in the gas sector has risen to Rs250 billion.

Insofar as the measures taken by the governments to manage affordability of electricity and containing circular debt are concerned, these have largely been superficial in the absence of required skills, boldness and determination to get to the bottom of the two highly complex issues and come up with tangible solutions. One reason for this could be the lack of knowledge and competence within the ranks of responsible entities to comprehend this complexity. One can understand this handicap as the issues involved are of such nature that these entities never been confronted with and which demand a high level of expertise, competence and experience that undoubtedly is not available with the public sector. To arrive at a realistic and sustainable solution the government of the day may consider reaching out foreign experts.

(The writer is former President Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2020