Power sector challenges
Previous governments whether run by Pakistan People’s Party (PPP) or Pakistan Muslim League Nawaz PML (N) did not address the challenges pertaining to electricity production and supply. They deliberately ignored the cheap power generation by exploiting the hydro potential and renewable energy resources like wind and solar. Now the new government which will be installed after general elections of 25 July will be facing the same challenges because of poor management of power sectors that multiplied over the past 10 years. They include inter-corporate debt, higher transmission and distribution losses, and in addition extremely low recovery of power consumption bills from the political elites, business tycoons and government departments.
Electricity tariff in Pakistan is highest in the world that negatively impacts the economic environment. Quite recently, it was raised twice much to the detriment of interest of domestic and commercial consumers. The consumers’ bills are flooded with a number of high rate surcharges, which include debt surcharge, Neelum Jhelum surcharge, electricity duty and 20 percent plus sales tax levy. From the month of June and onwards the consumers are paying anew indirect tax, fuel price surcharge. In May the Economic Coordination Committee of the Cabinet had decided to terminate the Neelum Jehlum Surcharge form July 1, but it is still added in the bills despite the fact that four out of five generation units of Neelum Jhelum hydropower project have been made operational and there seems no justification of the surcharge to be received indefinitely.. Two more surcharges for Basha and Mohamand dams are likely to be incorporated in the electricity bills within the next few months.
A former finance secretary Dr. Waqar Masood advised the previous governments to shift the burden of defaulters to the honest consumers through tariff increase. The PML-N government enthusiastically implemented this proposal which is nothing but sheer animosity with the people who honestly pay the electricity bills. But even then the amount of receivables kept on swelling.
The PML-N government ramped up highly expensive thermal power generation capacity, ignoring its affordability and sustainability issues. Hence frequent upward revision of power tariff clubbed with a barrage of surcharge and sales tax there on to break the back of consumers thereby rewarding the defaulters. Power generation capacity did increase but production and supply declined because of fuel shortages. Furnace oil, LNG and coal can not be imported due dearth of foreign exchange but payment to the private power produces has to be made for the idle generation capacity.
The genie of load shedding could not be put back in the bottle. The transmission network is in shambles. Over the past five years only 20 percent transmission network could be upgraded and remaining 80 percent is yet to be handled. The obsolete transmission system is incapable of bearing the load of additional power supply to be transmitted to distribution network. All the projects for upgrading and expanding the transmission network have been delayed because of largely relying on Chinese financing which did not come on time.
The distribution system is far from satisfactory. There are few distribution companies in the province of Punjab alone that are working efficiently like FESCO, LESCO and GESCO. All other distribution companies around the country are quite inefficient.
The affordability and sustainability factors have been deliberately ignored because of lust for getting kick backs in power projects. The PPP governments imposed the scourge of IPPs and RPPs on the poor people and the PML-N government gifted them the monster of coal based and LNG fired thermal power plants. No project of cheap electricity generation and supply has been initiated by the previous government to ease the burden on consumers.
Another challenge of power sector is the uncontrollable circular debt in the energy chain, which has reached well over Rs. 1 trillion. In June, aggregate technical and financial losses stood at 30 percent, including leakages in transmission, distribution and lower recovery of electricity bills. The amount of default has reached Rs. 875 billion. The Central Purchasing Agency has to pay Rs. 550 billion to power producers whereas an old debt of Rs. 700 billion had been parked in Power Holding Private Limited.
The next government will have to cope with all these challenges. It will be required to lay new transmission lines and make electricity tariff affordable for consumers by entering into new and transparent agreements for inexpensive power generation from renewable energy resources.