Power sector reforms

To save the power sector sinking ship PTI government initiated reforms which focused on curbing electricity pilferage, increasing the share of inexpensive electricity from renewable sources in the power mix, improvement of distribution system and tackling the chronic problem of mounting circular debt. In a high level meeting Prime Minister Imran Khan was given a detailed briefing on the progress made so far to achieve the set targets.

The crack down on power pilferers has slightly improved the electricity bill recovery position of power distribution companies and has discouraged the culture of getting electricity directly through hooks. But this drive has remained restricted to action against domestic and small consumers. The officials of distribution companies need the support of government to go after the big fish as the outstanding amount of power sector receivables has reached Rs. 870 billion. Government departments and public sector corporations owe billions of rupees to power distribution companies. These arrears can be retrieved by at source deduction from the provincial governments and government of Azad Kashmir through the mechanism of federal adjuster in the ministry of finance.

The sale of furnace oil has dropped by 57 percent to 2.5 million tones which shows declining reliance on highly expensive thermal power generation from furnace oil fired plants during the past winter season. But even then electricity tariff was hiked a number of times and the circular debt went on bulging. Another power tariff increase of Rs. 3 per unit is on cards. This is because of the shady power purchase agreements allowing the payment40 percent capacity charges to the IPPs for the electricity which is neither produced nor inducted in the national grid for consumption by the consumers. For the first time the internal audit of electricity generation cost of IPPs is being done whereas NEPRA always allowed highly inflated tariff to them denominated in the US dollars.  Lower tariff determination in local currency for private power producers will have negligible impact on reducing the burden of circular debt unless the issue of payment for idle capacity is resolved. The government intends to substantially reduce the amount of circular debt during the next fiscal year and completely wipe it out by December 2020 by controlling electricity theft and increasing power sector receivables, ignoring the scourge of idle capacity charges imposed in the second Benazir Bhutto government for IPPs. Legal solution of power purchase agreements seems inevitable.

It is worth appreciation that the present government has reversed the extremely damaging thermal power generation policy actively pursued by PPP and PML-N governments by switching over to clean energy production from hydel and wind. Greater focus will now be on mega hydroelectric power projects, medium and small hydel power stations. It is encouraging that 25 years plan of electricity demand and supply has been worked out and under the new energy policy the share of electricity from renewable energy sources will be increase to 30 percent by 2030. An increase of 3000 megawatt has already been achieved. But power generation of 100000 megawatt from renewable energy sources is needed to bring down electricity tariff, which necessitate launching and early completion of the hydel power projects in Khyber Pukhtunkhwa which awaits CDWP and ECNEC approvals.

Power transmission and distribution system has become obsolete and faulty and needs up-gradation to enable it pick additional power generation. Over the past few months piecemeal up-gradation of transmission lines has been completed. However, it remains to be seen as to whether it will sustain the peak load in the next three months. The Asian Development Bank (ADB) had sanctioned a loan of $4.5 billion in 2016 for modernization transmission and distribution system. As it also included a component of $ 400 million for installation of smart meters therefore the previous government did not show any interest in availing the loan facility although commitment charges are being paid on it. Hopefully, the present government will utilise the ADB concessionary loan for the up-gradation and modernization of electricity transmission and distribution system and implementation of advance metering project.