Report on SOEs: MoF lists factors cutting profitability of power sector

ISLAMABAD: The electricity theft as well as under collections of billing and transmission and distribution losses in old infrastructure is driving down profitability of the power sector.

A consolidated report on SOEs fiscal year 2020-22 of the Finance Ministry noted that addressing the situation entails concerted efforts in enhancing electricity bill collections, curtailing line losses in transmission and distribution systems, and combating electricity theft to ameliorate the power sector’s financial performance.

There were subsidies granted to power sector Rs660 billion in fiscal year 2022 mostly on account of inter Disco Tariff Differential.

Power sector net losses haves increased to Rs321 billion in fiscal year 2022, reflecting an exponential increase of 169 per cent over Rs119 billion during fiscal year 2021.

The report revealed that the two main issues under collection of billing as well electricity theft and transmission and distribution losses due to old infrastructure are driving down profitability.

The report added that addressing this situation entails concerted efforts in enhancing electricity bill collections, curtailing line losses in transmission and distribution systems, and combating electricity theft to ameliorate the sector’s financial performance. There were subsidies granted to power sector Rs. 660 billion in fiscal year 2022 mostly on account of inter Disco Tariff Differential.

The total employment in the Power sector is significantly high as it is the largest employer, engaging over 139,000 individuals, with Electricity Distribution Companies (DISCOs) accounting for over one hundred thousand employees.

Additionally, sovereign guarantees of Rs 1.1trillion to the sector are also placing high risk of continent liabilities towards government.

The report also noted that in terms of assets, power sector ranks third, boasting a book value of Rs. 6.48 trillion in fiscal year 2022, marking a moderate 12 percent increase from the preceding year’s value of Rs. 5.776 trillion. However, concerning the equity side of the balance sheet, DISCOs exhibiting a decline, reflecting a net negative equity of Rs1,426 billion, placing it as the second sub-sector with negative equity.

On a cumulative basis the power sector has a negative equity of Rs720 billion.

The sector’s collective revenues showcased consistent growth, culminating in Rs. 3.008 trillion in fiscal year 2022, marking a 43 percent increase from the fiscal year 2021 value of Rs. 2.106 trillion. The dip observed in fiscal year 2021 revenues, slightly below fiscal year 2020 figures, was indicative of the pandemic’s impact, notably the COVID-19 lockdown and subsequent relief measures.

However, despite revenue growth prospects, the sector’s operational margins and profitability remain areas of concern for the federal government. The sector reported a net loss of Rs.320.778 billion for fiscal year 2022, up by 169 percent over Rs 119.304 billion over fiscal year 2021. DISCOs notably contributed to this loss, reporting a net loss of Rs. 375.582 billion in fiscal year 2022, primarily driven by operating losses at 16.3 percent, proportionally increasing with revenue increments.

Copyright Business Recorder, 2024