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Perspectives

A Province-Centric Approach to Improve the National Power System

The new SAPM for Power, Tabish Gohar, announced the government’s current thinking for reforming of the 10 (ten)...

The new SAPM for Power, Tabish Gohar, announced the government’s current thinking for reforming of the 10 (ten) Distribution Companies (DISCOs). The main objective of the new planning is to make the power sector viable by slowing down the build-up of the debt, i.e. to puncture a hole in the ballooning Circular-Debt. For many years now, the country’s power sector has been bleeding money due to system losses, revenue short-fall and a slow growth of demand for electricity. It has been realized that nothing short of some drastic steps spread over several coming years would be needed if the power sector is to be turned around.

The handing-over of the ownership and management of DISCOs to the respective provincial governments is being seen as a corner-stone of the new arrangement. This step is in conformance with the devolution process that was started and under which more and more functions are to be transferred from the federal to the provincial governments. It is also in the spirit of a true grass-roots democratic dispensation (the author had made a case in its support back in 2017). While the complete road-map to achieve a decentralization of the power sector is yet to be fully defined, if it is to achieve the desired results, it is vital that the government is mindful of the pitfalls in the approach to be taken.

The decision-makers should not remain under the illusion that it will be a quick-fix of the inefficiencies of the distribution system, and hence the Circular-Debt problem. As the K-Electric saga tells us, and who knows it better than Mr. Gohar, that even a decade is a short time to bring out an electric utility from the woods. Hence, a comprehensive multi-year plan with well-defined and measurable parameters must be agreed up-front to keep any lofty expectations at bay. The legal aspects relating to transfer of DISCOs to the provinces, it is hoped, will be adequately addressed by the Ministry of Law and NEPRA. However, overcoming the legislative hurdles might require a much longer time-frame than what the prevailing dire situation of the sector seems to warrant. The Council of Common Interest (CCI) approvals, possible revisions in the National Finance Commission (NFC) Award Formula, and other regulatory changes are only some of the milestones that will need to be timely achieved and very early on in the process.

It appears that once provinces become the owners of DISCOs, they will have to bear the Tariff Differential Subsidy (TDS) which is presently being paid by the federal government. In this case, the TDS would have to come out from the annual NFC award made to the provinces and rightly so. While it is a new financial burden on the provinces’ budgets, they will have the wherewithal, viz. access to the law enforcement agencies, to stop theft of electricity from the system. The provinces are also in a better position to recover unpaid bills from consumers, especially large ones, and these measures would help to improve the DISCOs’ finances in due course of time. The DISCOs have been severely lacking a customer-friendly approach and the public suffers when it comes to obtaining a new electricity connection or fixing of system faults or for that matter rectifying the faulty bills. The setting up of Customer Service Centers along modern lines and under the watch of the Chief Minister of the province can alleviate this shortcoming.

The DISCOs’ Transmission and Distribution (T&D) system is in continuous need of improvements as the system expands and aging assets have to be replaced with new ones. This requires fairly large amounts of capital expenditure which the provinces may not be in a position to afford, at least in the initial years. They also don’t have the financial standing to get such large loans from international or even local banks due to absence of a sovereign borrowing capacity. To overcome this problem, it would be appropriate that the federal government should lend the needed amounts which can be adjusted on a piece-meal basis from the NFC payments to be made over the future years.

Not every problem can be fixed by throwing money at it and lending by the federal government to the provinces can be like throwing hay in the wind unless it is complemented by technical capacity building. The overseeing of a new electric utility company will be totally novel experience for the provincial government machinery for which its capability will need to be improved markedly. The country’s power sector has traveled this road before. In the late seventies, when the country launched EHV (Extra-High-Voltage) transmission lines and was planning major hydropower projects, NESPAK (National Engineering Services Company) was entrusted with providing indigenous-based consulting services in these two areas. The same approach can be followed and government could initiate the setting up of a consulting company that is exclusively for providing technical support to the provincial DISCOs. The consulting company shall, among other things, guide them in implementing technical solutions for bringing about energy-loss-reduction and strengthening of the system maintenance practices.

In an earlier announcement by the government, it was being planned to bifurcate the DISCOs into commercial and technical entities. It is not clear whether this will still be the mantra now that the transfer of DISCOs to the provinces is being considered. Trying to do both – transfer to provinces and bifurcation – at the same time would be a juggling act which is better not undertaken. Finally, any plan is not worth the paper it is written on unless it is supported by a comprehensive and clear execution strategy. It’s okay to raise the head above the clouds but remain mindful that in the process your feet are well on the ground.

Farrukh Mahmood Mian

The author is a former Director of Energy at the Islamic Development Bank (IsDB)