According to a Business Recorder exclusive, the Power Division in the Ministry of Energy has proposed the revival of Pakistan Electric Power Company (Pepco) which was dissolved in November 2011 by its Board of Directors into eight autonomous companies. This decision was taken during the tenure of the PPP-led coalition government at the insistence of the International Monetary Fund (IMF) which had considerable leverage at the time given the ongoing 11.3 billion dollar Stand-By Arrangement. The objective of the Fund in insisting on dissolving Pepco was to arrest its annual 250 million rupee loss and to allow distribution companies (Discos) to manage independent of the government which would have led to different electricity rates for different Discos, depending on their financial health.
Unfortunately, however, these salutary objectives were never met and the government through the Power Division not only continued to influence decision-making in Discos, including appointing officials, but also continued to insist on one tariff throughout the country which implied heavy annual subsidies from the exchequer. These subsidies, due to sustained paucity of funds, have not been disbursed on time leading to load shedding. In other words, economies as well as improved performance with the element of full cost recovery of the sector envisaged after the dissolution of Pepco was never realized because the federal government did not allow any meaningful autonomy to the eight distribution units.
Ishaq Dar amidst much fanfare retired the circular debt by borrowing from the domestic banking sector about two and half weeks after he was given the finance portfolio without bothering to get a pre-audit done, which was a requirement. To date this remains an issue with the office of the Auditor General of Pakistan confirming to the relevant Senate standing committee that no pre-audit was undertaken and that the audit would have taken no more than three days to complete; however, three days would have taken this debt into the books of fiscal year 2013-14 for which the PPP government could no longer be held responsible. Be that as it may, the decision to retire the debt through loans would have been appreciated had it not resurfaced; and had not the need to incur more loans become acute again as at present the government is considering another 80 billion rupee loan to settle the circular debt for which it has requested a pre-audit.
Circular debt was a bit over 480 billion rupees in 2013 and has now crossed one trillion rupees - 541 billion as circular debt and the remaining 500 billion rupee debt is parked in the Power Holding Private Limited. The interest on loans is being paid by consumers, which effectively implies that the cost of unjustified interference as well as poor performance of the sector is being borne by the consumers.
In actual terms, the Financing Cost Surcharge on consumers is being levied at the rate of 43 paisa per unit to enable the government to pay around 30-32 billion rupees in debt servicing of the Power Holding Private Limited. The principal or the actual debt parked in the Holding Company has still not been cleared and is being rolled over as and when it becomes due. Additionally, three surcharges amounting to 1.55 rupees per unit are being borne by those consumers who pay their bills regularly to finance 110 billion rupee worth of theft, system losses and non-recovery of power companies.
Business Recorder does not support Pepco's revival and at the same time urges the government to grant autonomy to Discos to ensure improved performance of the appallingly run energy sector.