LAHORE: The Institute for Policy Reforms (IPR) said on Wednesday said that both the Ministry for Water and Power and the regulator - National Electric Power Regulatory Authority (Nepra) - should reform themselves to provide reliable and economic power to the people.

In its report, the IPR said that while the ministry should improve service delivery, the regulator may strengthen its incentive and penalty mechanisms and exercise a greater vigilance.

Nepra highlights infrastructure and governance issues that affects the power supply chain. These issues include power generation, tariff policy, system inefficiencies, transmission constraints, and circular debt. In an advertisement in the media, the ministry contested most of Nepra’s findings.

IPR report highlights strengths, weaknesses of both players

The IPR advises all parties to work together to address power shortage. Based on government data, the IPR assessed the competing findings and claims of the two organisations. It finds Nepra’s position too negative and the ministry too positive about their own achievements.

About the increasing generation capacity, the report says, the ministry refers to government initiatives, but facts speak otherwise. Generation and consumption increased by 9 percent in 2013-14 , but this resulted from the better use of existing capacity upon retirement of circular debt. With respect to increase in generation capacity, the PPP government worked well during 2008-13. In the last two years, increase in capacity has been modest. In fact, generation actually declined in the first nine months of 2014-15.

The ministry also claims that it ensures uniform load shedding in the country which also made it predictable. It also claims zero load shedding for the industry. The IPR sees such claims invalid. Loadshedding hours vary widely among distribution companies. Loadshedding reduced somewhat in 2013-14 because of payment of circular debt, but there was no improvement in 2014-15. Also, the industry continues to suffer power breakdowns.

The ministry contests Nepra’s statement about not using the generation capacity available in the system. They did so to reduce the generation cost. Though this is valid, their rationale is weak in the face of reduced oil prices. The unused capacity could have been brought in service, as the cost of operation was lower than the economic loss to production units from power outages.

The ministry also claims that an improved cash flow has helped independent and other generation companies maintain sufficient stock of fuel. The claim too is not supported by facts. In January 2015, there was a major fuel crisis in the country when the PSO did not have the means to open LCs because a high level of receivables.

The ministry states it has capped circular debt at Rs320 billion as it now fully liquidates financial claims of IPPs, PSO, and gas companies. This claim is valid only if we do not take account of future liabilities. The flow of funds in the sector is deteriorating again.

It says the government has committed to the IMF to reducing the power sector subsidy by half. For this, it has levied a tariff rationalisation surcharge to yield Rs100 billion. The surcharge has increased consumer price of electricity by 20 to 33 percent but at the cost of competitiveness of the industry. Industrial tariff in Pakistan is 23 percent more than in India and substantially more than in Bangladesh. The government has also agreed to privatise efficient companies like Fesco, Lesco and Iesco. The government also may consider privatising loss-making distribution feeders.

The government has introduced quietly duties and taxes on furnace oil. Estimated additional revenue from these levies amounts to Rs31 billion. This means that consumers do not fully receive the pass though benefit of low oil price.

Nepra states that restricted transmission and distribution is a bottleneck, which prevents maximum use of production capacity. The ministry states that sufficient funds have been provided to install new grid stations, transmission lines and transformers and that more than two thirds of the bottleneck stands removed. The review of the PSDP shows that these funds were insufficient to begin with and the NTDC has used just 25 percent of the allocated amount. This puts to question both government priority for T and D and implementation capacity of NTDC and Discos. This situation may limit expected benefits from CPEC power projects.

The ministry does not agree with Nepra’s ranking of Disco performance. Through its own modeling, the IPR agrees mostly with the ministry that the top ranked companies are Fesco, Gepco and Iseco.

The power sector needs concerted effort for improvement through pooling resources and ideas, the report concludes.

Published in Dawn, October 22nd, 2015

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