Curbing power sector pilferage

Prime Minister Imran Khan, while chairing the meeting of his economic team, expressed satisfaction over the improvement in macroeconomic indicators and decided to take across-the-board strong action against the influential electricity pilferers and running defaulters. It merits mention that power sector circular debt has jumped to Rs.2.1 trillion, half of which is caused by massive stealing of electricity by influential political and business elite and running defaulters of electricity bills.

Other half is accumulated due to non-payment to IPPs on account of which 40 percent idle capacity trap and not bringing up-gradation and improvement in the rag-tag power transmission system which accrue 35 percent line losses and frequent system breakdowns. Another major reason of swollen circular debt is non-payment of electricity bills by provincial governments and government of Azad Kashmir.

It is worth many appreciations that Prime Minister is keen to clear the mess which had piled up in the power sector since 1994, mainly because of not prioritizing projects of clean and inexpensive electricity generation from renewable sources such as hydel, wind and solar and agreements, containing clauses detrimental to national interest, for expensive thermal power generation which were made for receiving kickbacks. The unsustainable circular debt accumulation amply explains this bitter fact how a landmine for blasting the economy with unaffordable electricity generation cost was laid, the brunt of which all category of consumers has been bearing for the past 12 years.

The business leaders have been persistently complaining against the month-on-month and quarterly increases in electricity tariff because according to them it makes export products non-competitive in the international market.

The contented that Pakistan will not only lose its remaining small share in the global textile market but also deprive it of the new opportunity of getting share from $20 billion market space that has emerged from suspension of textile exports from China. Conceding their most genuine demand, federal cabinet in its meeting on Thursday decided a temporary relief of freezing the electricity tariff for the next four months. Under the agreement zero rated industries, including textiles will now get electricity at 7.5 cents per unit, inclusive of all taxes and surcharges.

However, trade bodies want permanent solution for fixing this problem. Pakistan Industrial and Traders Association Front (PIAF) has urged the government to renegotiate Power Purchase Agreements with Independent Power Producers (IPPs) as they are earning unjustified 40 percent profit on electricity generation which is 17 percent more than margin of profit allowed in many jurisdictions being allowed in other countries for thermal power generation. Ironically, the IPPs lobby is so well connected in the corridors of power that they have got immunity from audit of electricity generation cost by an auditor to be appointed by government since coming into operation of their thermal power plants.

Faulty power transmission system is also a major contributory factor as technical losses are continuously on the rise. The currently installed capacity of electricity generation is 26,000 megawatt but the transmission and distribution system cannot pick more than 18,000 megawatt but all categories of consumers have to pay for idle capacity of 8000 megawatt.

Hence honest consumers are charged with inflated electricity bills. Another 4000 megawatt shall be produced in the near future after the completion of ongoing hydel power projects. Consequently, the consumers who regularly pay their monthly bills shall be loaded with further burden. Electricity tariff has to be lowered to create additional demand for its consumption of electricity.

Government has also given a relief in gas tariff and consumers shall be charged at 6.5 cents per mmBtu till the end of current fiscal year. Pilferage and distribution losses are also rising in gas sector. The issue needs immediate attention. The non-transparent and ‘take or pay’ clause included in LNG import deal made with Qatar is rather more compelling reason for frequent gas tariff increases. The Petroleum Division has proposed to consolidate all LNG terminals and supply system under one entity to slash price of imported gas by 5 percent.

This is nothing but throwing a drop in the ocean. Slowdown of Chinese and other South East Asian economies has declined the demand for LNG in these countries which have made agreements allowing them to curtail LNG imports and pay for the quantum of gas they actually import. There is not harm to make an attempt for renegotiating the LNG deal with Qatar in the prevailing global economic situation.