Pakistan keeps going back to the donors to help identify, plan, and fund power sector reforms. What it gets usually is pricing adjustments guised as reform. The latest State of Industry Report 2023 issued by the regulator, Nepra, sheds more light on the absolutely dismal state of affairs in the electricity generation, distribution, and transmission sectors. The gains are too little too small, and the deterioration is faster than ever before.
The losses for the national grid (Central Power Purchasing Agency) CPPA continue to hover above 22 percent – having gone down to 18 percent in FY21. For K-Electric (KE), FY23 returned worse than FY22 – with the technical and commercial losses amounting to 21.4 percent – up from 18 percent a year ago. No surprise that this coincides with a massive hike in electricity tariffs – that has almost trebled since FY17 – to an average of Rs33/unit.
FY23 was a year to forget as total electricity generated and distributed went down nearly 10 percent year-on-year. This is despite the continued rise in the number of consumers on the grid including KE. Total number of consumers went up 5 percent year-on-year, in line with historical average growth to 38 million.
Such is the slowdown, that the electricity sold to domestic consumers at 46 billion units is even lower than that in FY18 for CPPA, and lowest since FY19 for KE at 7.4 billion units. Consider this the per capita domestic consumption of electricity at 1,533 units for CPPA is the lowest in at least 20 years. For KE, the per capita consumption at 2,455 units is also the lowest since at least FY07.
The electricity usage drop has coincided with a substantial rise in installed and dependable capacity – which results in a substantial capacity charge component. At a time when electricity use case should have ideally increased, the drop means more burden on unit prices. What makes matters worse is that lower per capita consumption throws more and more consumers to the lower (and often protected) slabs – which essentially means a higher incidence of cross-subsidy for other users.
Overall billing collection at 93.4 percent for CPPA does indicate a slight improvement year-on-year, but it’s still a drag of more than Rs210 billion as the regulator assumes 100 percent collection in its tariff assessment. At KE, domestic billing collection went down from 90 percent to 84.4 percent, as the average billed amount rose from Rs18.4/unit to Rs29.4/unit.
Industrial electricity consumption went down considerably as the average unit price increased by Rs11/unit from a year ago. This has a bigger impact on the collection, as recovery is close to 100 percent from industrial consumers. It is ironic that collection from sectors with the lowest average selling price is also the lowest – as domestic and agriculture sectors continue to be heavily cross-subsidized yet constitute 95 percent of the recovery losses.
The case of the agriculture sector is particularly intriguing, where consumption per connection at 25,518 units stands at the lowest in 20 years –and the recovery continues to be abysmally low at 62 percent. This alone contributes a little over Rs100 billion to overall collection losses – contributing nearly half to overall collection losses with a share in sales of just 10 percent.
Problems are aplenty with the power sector. Price adjustment alone never has and never will fix it. The authorities must come up with a plan to increase electricity consumption – more so at the industrial and commercial levels. The captive power generation needs to be discouraged to the point where the grid becomes the connection of choice (already in the works). Privatization needs to happen yesterday.
More on the technical aspects of the report later.
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