ISLAMABAD: The government of Punjab has expressed willingness to take over Punjab-based power Distribution Companies (Discos) subject to transfer of assets and not liabilities, along with management control.
This was conveyed by Punjab Finance Departments and endorsed by Chief Secretary of the province on a summary of Punjab Energy Department.
Finance department, in its comments on the summary of Energy Department has reiterated its earlier viewpoint that a holistic approach may be adopted in review and prior due diligence.
The matter of provincialisation of Discos has been analysed in view of its potential impact on the limited fiscal space of the province. Significant factors like financial health of the Discos, legal framework, control over load management, etc, have been taken into consideration while evaluating the Discos located within the jurisdiction of Punjab.
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The transfer of distribution function only to the province while leaving the transmission and generation with the federal government may further complicate the already complex power sector at the cost of expected improved recovery of bills only.
Details of examination are as follows: the transfer of Discos implies transfer of its assets, liabilities, accumulated losses, future investment requirements and the respective share of circular debt lodged in the books of Disco(s). The consolidated financial health of Discos in terms of losses and liability profile has the potential to become a significant burden on provincial exchequer.
Financial baggage of the Discos in terms of negative equity, transmission & distribution losses, liquidity issues due to circular debt and employees related retirement benefits may expose the provincial government to high fiscal risk.
Key financial indicators of the Punjab-based Discos (Lesco, Gepco, Mepco, Iesco& Fesco) for the FY2020-21 on consolidated basis are as follows: (a) equity/net worth(Rs 165 billion); (b) transmission and distribution losses (Rs 228 billion - 17 per cent of assets); (c) other receivables-subsidies (Rs 421 billion( 29 per cent of assets; (d) trade payables –Rs 740 billion (51 per cent of assets; (e) long-term loans Rs 50 billion; and (f) staff retirement liabilities - Rs 401 billion (28 per cent of assets.
Punjab Finance Department maintained that the distribution infrastructure of Discos primarily comprises of 132kV transmission lines (15,736 kms), grid stations (588 Nos.), power transformers (1,461 Nos.), distribution transformers (6,091 82 Nos.), and 1 kV feeders (7,92I Nos.), serving a total customer base of 26 million consumers. The book value of total fixed assets was Rs. 569 billion end June 2021.
The annual capital expenditure of Discos during FY 2020-21 amounted toRs.34 billion. Given an annual growth rate of 6% in customer base in FY 2021-22 over the previous year and pending customer connections at the end of FY 2021-22, the annual CapEx requirements are expected to substantially increase in future.
Finance Department maintains that Federal Government has exclusive power to make laws with respect to electricity as mentioned in Federal Legislative List Part-II implying that Provincial Government will be bound to follow Federal Government’s rules and regulations for managing the Discos which may not be a desirable solution for efficient management of DISCOs at provincial level.
Currently, Federal Government is the sole power purchaser through Central Power Purchasing Agency-Guaranteed (CPPA-G) and with country-wide distribution network (excluding K- Electric) managed through ten Discos.
The Federal Government notifies uniform national consumer tariff and determines subsidy accordingly. As per Article 157 (2) (d) of the Constitution of Pakistan, the Government of a Province may determine the tariff for distribution of electricity within the Province.
Therefore, Punjab Finance Department has suggested that provincialisation of Discos may be preceded by establishment of a provincial regulator for tariff determination and regulation of provincial Discos.
Currently provinces do not have any control over electricity load management. It would be a challenge for provincial Discos to meet growing electricity demand without any control over load management.
Therefore, it has been suggested that a minimum guaranteed supply of power should be committed by Federal Government for proposed provincial Discos. Also, provincial share of capacity payments to Power Generation Companies (Gencos) should be determined for incorporating in end-consumer tariff at provincial level.
Punjab Finance Department argued that the debate of Discos’ provincialisation may become less important with the implementation of CTBCM-Competitive Trading Bilateral Contract Market (CTBCM) , required to be implemented under NEPRA Act, wherein a Disco becomes a wire-only business by way of taking electricity marketing and selling out from the scope of a Disco.
In view of the financial risk factors and legal constraints in operating Discos at provincial level, Finance Department is of the considered view that Provincial Government may give its consent for takeover of provincial Discos located within the jurisdiction of Punjab only to the extent of transfer of assets and not liabilities, along with management control subject to necessary due diligence on the part of Energy Department. Accordingly, at this stage only Chief Secretary Punjab has endorsed the proposal.
Copyright Business Recorder, 2023