In its recently issued performance assessment of GENCOs, Nepra put the energy loss by these state-run power generation companies at a whopping 15 billion KWh. An equivalent figure in dollars would be close to $1.5 billion in losses for FY15-FY16!
According to the Nepra’s determination of 1263MW R-LNG project at Jhang, the total project cost was roughly $800 million. To quantify the opportunity cost of this $1.5 billion loss, the government could have set up almost two 1263MW R-LNG power plants inclusive of their CAPEX and financing costs in this amount.
This loss was borne by the taxpayer at the end of the day while GENCOs have had a paltry fine of Rs15 million imposed by the regulator. Recall that Nepra also imposed a fine of Rs5 million on the National Transmission and Despatch Company Limited (NTDCL) for failing to comply with prescribed limits for voltage and frequency fluctuations.
If the quantum of losses is assessed, then these fines are a joke in comparison. But what can the regulator do? It cannot dismiss the management of GENCOs or impose larger fines because ultimately it will be passed on to the end consumer.
Last year, the Auditor General of Pakistan (AGP) put the aggregate financial losses in the power sector due to poor governance and financial mismanagement at a shocking Rs1.3 trillion rupees. That is almost equal to 4 percent of Pakistan’s annual GDP!
It does not seem likely that fines will yield any change in the management of state-run institutions in the power sector. The common denominator is the same: state-run. And over the years that has been synonymous with negligence, poor governance and regression.
When enquired by the regulator as to the reasons for remaining on excessive standby mode, GENCOs cited National Power Control Centre (NPCC) and fuel constraints. An investigation should be launched to ascertain the basis for keeping average utilisation criminally low with TPS Guddu at 11 percent and GTPS Faisalabad at 15 percent.
This was done when generation cost of furnace oil and gas generation was considerably lower than the previous year. The past years have certainly confirmed that the NTDC has severe limitations when it comes to energy demand forecasting. But it seems its ability to optimize generation according to the merit order is also curtailed in light of these revelations.
There is no doubt about the equipment deterioration, lack of scheduled and preventive timely maintenance and absence of technical expertise in GENCOs as well as NTDC. But the problem is that when all institutions are state-run and Nepra’s role has also been reduced, circular debt will only continue to increase exponentially.
The past decade has seen increasing power tariffs, unmanageable load shedding and trillions of rupees in circular debt. Yet, government institutions continue to pass the blame to each other. The only long term solution to make the power sector operationally and financially viable is through increased private sector participation.