Power sector reforms stay put: Donor’s insistence on achieving cost recovery big hurdle

ISLAMABAD: Power sector reforms, started in the 90s to improve the system by reducing losses, attracting private investment and provide power at a reasonably priced tariff through the regulator, remain incomplete and the government, like its predecessors, continues to raise end tariffs to meet the donor’s insistence to achieve full cost recovery.

The cost of generation, according to the government and multinational lenders, is higher due to more dependence on thermal generation, but at the same time power Distribution Companies (Discos) have failed to improve their recoveries and bring down losses as per the benchmarks given by National Electric Power Regulatory Authority (Nepra).

The government has increased base tariff by about Rs 4 per unit since PTI came into power in addition to Quarterly Tariff Adjustments (QTAs) and monthly Fuel Cost Adjustments (FCAs) with yet another increase of Paisa up to 95 per unit in base tariff on the cards to be effective from February 2022 in the name of subsidy reforms. In addition to this, an increase of Paisa 75 per unit in base tariff is also expected in two months.

The Cabinet has approved (i) a phased retargeting of electricity subsidies that protects poor households and reduces subsidies for other consumers; and (ii) a revised electricity tariff structure under which consumers using below 200 kWh/month for six consecutive months would be fully or partially protected from tariff increase. The country’s circular debt has reached Rs 2.419 trillion during July-October 2021-22 from Rs 2.310 trillion in the corresponding period of 2020-21.

IMF talks on power sector reform pace remain inconclusive

The Power Division has proposed to the government to bring down targets of recovery and losses for Discos so that losses are passed on to the consumers to improve recovery, otherwise an amount of Rs 500 billion will be added to the circular debt in the next five years.

Successive governments have failed to privatise Discos, due largely to political compulsions. The incumbent government has given representation to the private sector/power sector experts on the Discos, Gencos and NTDC Boards but most of them hail from Karachi Electric (KE) regarded as having the same mind set as the former SAPM on Power and Petroleum, Tabish Gauhar. The government has decided to give management control of eight Discos to the private sector for which Privatisation Commission (PC) will hire Transaction Advisor and roll out the procurement for management contracts and concession agreements.

The government has also cleared the agreed amounts of IPPs established pre-1994, Power Generation Policy 1994 and 2015 whereas 40 per cent payment to IPPs of 2002 Policy will be cleared within two weeks. As the payment is cleared to all the IPPs, reduction of about Paisa 43 per unit in tariffs of IPPs will be implemented. However, the government is still silent on revision on tariffs of power projects established by the Chinese companies under CPEC. World Bank has urged the government to seek concessions from Chinese companies at par with other IPPs.

A senior government official told this correspondent that the reforms this government has initiated is just a beginning which must be continued to achieve reduction in circular debt and better fiscal outcomes.

He further contended that as stipulated in the National Electricity Policy, Ministry of Energy is preparing a National Electricity Plan which includes responsibilities and timelines to implement the policy.

The government has approved Indicative Generation Capacity Expansion Plan 2021-30 that meets requirements for increased shares of variable renewable energy in the generation mix. NTDC has developed and submitted to NEPRA a least cost generation plan based on criteria approved by the Cabinet, which includes 63 percent of renewable energy (solar, wind, hydropower, and baggasse) by 2030.

Discos have also started a survey with the objective of linking all electricity meters with CNIC and to coordinate this database with the National Socio-Economic Registry (NSER) of Benazir Income Support Programme (BISP) to develop a plan for transition of electricity subsidies to cash transfers.

The Prime Minister has also directed the Power Division to finalise Competitive Trading Bilateral Contracts Market as early as possible. Nepra will approve the updated grid code and commercial code to set the objectives, principles, rules, fights and obligations that govern the trading in the new wholesale market.

Copyright Business Recorder, 2021