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ISLAMABAD: The federal government is yet to firm up a strategy to deal with the prevailing power sector crises with conflicting signals from the Prime Minister’s Office (PMO).

Prime Minister Shahbaz Sharif-led government appears double minded about which of the two proposals with respect to Distribution Companies (Discos) be taken: outsource Discos to private sector on long-term concessional agreements or hand over Discos to provinces.

Background interaction with power sector experts and officials who have worked on Discos privatisation, led to the conclusion that the government must consider the option of differential tariffs for Discos irrespective of whichever of the two options it implements.

Seasonal grid instability challenges in Pakistan–I

The federal government can no longer afford to extend over Rs 500 billion per annum of the taxpayers’ money to ensure tariff equalization throughout the country - money that, in effect, financially feeds Discos making huge losses due to the connivance of staff with consumers.

National Electric Power Regulatory Authority (NEPRA) determines differential tariffs for Discos based on their performance, but the federal government policy is to keep tariffs uniform throughout the country to avoid political dissent and/or possible attempt at blackmail by the provinces that have yet to extend the required administrative cooperation in dealing with theft.

The federal government earmarked over Rs 900 billion for Discos as subsidy to Discos and K-Electric for CFY 2023-24 to keep the stock of circular debt at Rs 2.310 trillion as on June 30, 2023. However, circular debt stock is around 2.6 trillion these days due to delayed release of subsidy claims by the Ministry of Finance.

“First you have to identify policy decisions on the future course of Discos’ tariff. Presently the federal government owns Discos (Barring K-Electric) that is why it has kept the tariff uniform across the country. However, if Discos are given to respective provinces, then differential tariff should be applicable as in that case, the consumer of Islamabad will not pay the bill of a consumer of HESCO, SEPCO, PESCO and QESCO,” said an official who worked on this matter in Privatisation Commission at a senior position. He said, since K-Electric is a privatised entity therefore it should not have been eligible for subsidy under tariff equalization policy but has been budgeted to receive Rs 171 billion for the current year under this head.

In 2010, the World Bank had suggested to the government to slap special surcharge on electricity bills in case the government intended to maintain uniform power tariff across the country. The government did impose surcharge on bills but decided to maintain uniform tariff to avert any political crisis. At present the price of power theft in far-flung areas in provinces is being paid for by the honest consumers who are also paying for incompetence of authorities.

“How come the financial impact of theft in other provinces can be passed on to the consumers of IESCO and LESCO? This needs a clear policy decision,” said Salman Amin, Member, CCP (Competition Commission of Pakistan).

Amin further contended that if Discos are provincialized then the uniform tariff has to be done away with or else there will be no logic to provincializing power entities.

He proposed that if there is any political compulsion to maintain uniform tariff even after Discos’ provincialisation, then the federal government should firm up a mechanism to deduct the amount of subsidy from the NFC share of the concerned province through a Federal Adjuster.

The government has already decided not to appoint the International Finance Corporation (IFC) as the Transaction Advisor for privatisation of Discos. The proposal to hire the services of the IFC as the Transaction Advisor on long-term concession agreements of Discos was placed before the Cabinet Committee on Privatisation (CCoP) but it did not sail through due to difference of opinion amongst the stakeholders.

The government has approved the constitution of Technical Working Group, with its composition to be determined by Minister for Privatisation, in consultation with Minister for Energy, which will assist Privatisation Commission in expediting the process as well as look after the technical requirements during the transaction. Salman Amin further stated that if the provinces do involve themselves wholeheartedly to stop financial bleeding of Discos then there is a need for this initiative. Another view is that as provinces are establishing their own Regulatory Authorities like Sindh (which has established SEPRA) they may determine tariffs of Discos in the province. The financial gap of determined and applicable tariff would be bridged by the respective provincial government. However, former Managing Director of erstwhile Pakistan Electric Power Company Tahir Basharat Cheema said that government should opt for long-term concessional agreements with those sound parties which have experience in running energy sector businesses successfully instead of giving them to provinces which do not have such expertise.

Copyright Business Recorder, 2024

Comments

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KU Mar 20, 2024 10:08am
They still don't get it, economy is gasping for life, theft of electricity and gas rampant and people frustrated on cost of living, how long can we survive?
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Tariq Qurashi Mar 20, 2024 10:52am
In the long term, when the firefighting and crisis is over, it will be renewable energy that saves the day; specifically homes that produce solar power which is sold back into the grid.
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Test Mar 20, 2024 01:41pm
@Tariq Qurashi, Don't worry govt should tax them solar tax worth 10000 Rs per month everybody has to pay capacity charges.
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Test Mar 20, 2024 01:42pm
@KU, what you don't get is they are not getting electricity free electricity prices have gone higher
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Mohammad Anwar Mar 20, 2024 03:04pm
Present rulers properties should be auctioned
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