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LAHORE: Energy supply can be increased immediately if the government wishes to do so, according to a fact sheet issued by the Institute for Policy Reforms on Wednesday.

During a recent meeting with the press, the federal minister for water and power recounted the causes of the energy crisis. The fact sheet demonstrated that government policy and management were also responsible for the shortage.

The minister’s list of causes included high circular debt, power theft, lack of gas allocation and ageing public sector infrastructure. The fact sheet stated “which one of these issues is beyond the government’s remit”.

“DISCOs, in whose system power theft takes place are under the direct control of his ministry (except K-Electric). The estimate of loss from power theft and under-recovery of bills by DISCOs is about Rs260 billion. Could leakage on such a vast scale take place without the knowledge of DISCOs?

“Under-recovery of bills has increased from last year, especially among the better performing DISCOs. In an alarming development in recent years, under-recovery from private consumers has increased. The ministry must take administrative measures and hold DISCO managements accountable. Reduced gas allocation increases cost of power as well as the circular debt,” stated the fact sheet while referring to its brief in May, which showed that the government reduced gas supply for the power sector by 20pc between 2013 and 2014. The diverted gas, it appeared, had gone to selected fertiliser manufacturers.

Taking the minister’s figure of 164mmcfd for gas supply shortfall, the IPR estimated economic loss of this policy at $400 million per year. Ageing power generation and transmission infrastructure resulted in below capacity generation and breakdowns. The government must prioritise investment to upgrade Gencos and transmission lines.

“Priority for roads (Rs116 billion) is hard to fathom at a time of national emergency in energy. There are not sufficient power projects in the public sector. Those that exist mostly receive off-budget funding and on a scale that would take many years to complete. It is possible to increase power supply within 12-18 months if the government gives it the priority that it deserves.

These issues in the power sector contribute to the size of circular debt. Circular debt reduces cash flow of power companies and impedes production. The government must address its causes (Disco governance, gas supply, in addition to tariff subsidy), but must also liquidate the build-up. There is no looking away from the problem merely to dress up the fiscal deficit,” stated the IPR report.

At the press conference, the minister cited Rs285 billion as circular debt. The current fiscal year budget provided Rs350 billion for its liquidation. With 11 months left in the fiscal year, the IPR estimated the amount needed to liquidate would be closer to Rs600 billion.

“There is no option but for the government to retire this debt. Circular debt just does not happen. It occurs because of government policy and its management of the sector. The minister gave solutions for the crisis. His main response is the oft-repeated call to wait for three years when 6,000MW to 7,000MW will come on stream. New power plants will also become inoperable because of poor governance, especially in DISCOs and also because of subsidy needed for each unit of power sold,” stated the IPR paper.

The IPR recommended improvement in Disco management through administrative measures and accountability. Restoring gas for power, finding ways to liquidate circular debt (linking it with accountability), and increase in public investment in generation and transmission while reducing it for roads could increase power supply quickly.

Published in Dawn, July 17th , 2014