EDITORIAL: The incompetence, corruption and inefficiency plaguing the country’s power sector ensure that Pakistan will see yet another hike to the ever-ballooning figure of its circular debt.
According to news reports, despite a rise in electricity prices of up to 51 percent in July, and without any further dose of government subsidies, the circular debt figure is set to reach a record Rs2.8 trillion by the end of the current fiscal year, a gross addition of Rs417 billion.
It must be pointed out that by June this year, this figure had reached Rs2.38 trillion, breaching commitments made to the IMF and the ceiling set by the federal cabinet in the Circular Debt Management Plan 2023-24.
A range of issues, from inefficient power generation and the pitiable state of the distribution infrastructure to tariff policies that are not fit for purpose, poor recoveries, rampant electricity theft and significant system losses, have all contributed to the burgeoning circular debt. Successive governments have repeatedly promised, and failed, to initiate major reforms in the power sector.
Given the government’s dominant role in every aspect of the sector, from policymaking and regulation to power generation and distribution, this persistent mess is largely a story of governmental failures.
And it is the middle class and poorer segments of the population that have had to bear the brunt of this gross incompetence, not just through paying exorbitant electricity bills, but also by battling hours-long load-shedding exacerbated by the current method of revenue-based power cuts, in which there is suspension of power supply to areas with high pilferage and poor bill recovery, an approach that is not just unlawful and largely ineffective in stopping power theft, but as has been pointed out in this space before, also ends up penalising honest consumers.
Additionally, there is the dilemma posed by certain IPPs collecting billions over the years in capacity payments without generating electricity due to the nature of the contracts that were signed with them, something the government is now trying to tackle, but which has proved to be a tricky area for it to navigate as excessive arm-twisting of the owners of these entities risks jeopardising private investment, so vital for sustained economic growth.
Nevertheless, a solution to the inefficiencies and high costs of power production has to be found to prevent further unbearable burden on the economy.
While resolving the challenge vis-a-vis IPPs may be a complex endeavour, there are other problem areas where governmental action could be comparatively easier, but remains stalled due to lack of political will, bureaucratic inefficiency, and general ineptitude.
The inability to effectively crack down on electricity theft, cut down on system losses, as well as improve bill recovery is a reflection of serious governance issues plaguing the distribution companies, that are often susceptible to political influence and are perpetually struggling to manage a large volume of consumers.
According to Nepra’s State of Industry report published in June, Discos lost 16.4 percent of the units purchased from power generation companies in 2022-23 due to technical losses and power theft, exacerbating the circular debt problem. There is a very obvious need to upgrade an aging network through improving transmission and distribution (T&D) infrastructure.
According to certain estimates, over 60 percent of Pakistan’s T&D network exceeds its designed lifespan, with the country suffering from some of the highest T&D losses globally. Moreover, governance reforms at Discos have become imperative to improve efficiency and address the circular debt problem, which has hampered the power sector’s financial sustainability for far too long now.
The practice of passing down the costs of inefficiencies to consumers just hasn’t worked, and the power bureaucracy must realise that there is no alternative to widespread, far-reaching reforms of the sector.
Copyright Business Recorder, 2024
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