Senate body questions Rs22 billion special fund for CPEC projects

Updated August 07, 2018

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According to Nepra chairman, if circular debt keeps on piling as a result of theft and inefficiencies, per unit energy cost to consumer could surge from Rs11.50 to Rs19.
According to Nepra chairman, if circular debt keeps on piling as a result of theft and inefficiencies, per unit energy cost to consumer could surge from Rs11.50 to Rs19.

ISLAMABAD: A Special Senate Panel on Monday questioned the creation of a Rs22 billion power sector revolving fund as a special arrangement to make preferred payments to power producers and investors under the China-Pakistan Economic Corridor (CPEC).

Senator Shibli Faraz of Pakistan Tehreek-i-Insaf, who heads a special senate committee on circular debt, said he was not against CPEC but wondered whether it was discriminatory to open up another head to the circular debt by ensuring 22 per cent payments to these projects for which the government would need commercial borrowing.

Zargham Eshaq Khan, Joint Secretary Power Division, agreed that this would be a commercial borrowing at Kibor plus 4pc rate but there was nothing his division could do except to execute the government-to-government agreement between China and Pakistan under CPEC that entailed such a requirement.

He said the revolving fund had not been actualised so far and the Power Division had moved a summary in which it has explained to the cabinet that at the time of CPEC signing, the Chinese power projects were guaranteed to receive 22pc payments in case of 78pc recoveries. However, the recoveries have improved since then and shortfall had declined to 10-12pc so the amount should also be revisited accordingly.

“This number should be reduced in line with the actual shortfall,” he said, while advocating this in a summary to the Cabinet which has to be decided upon by the caretaker cabinet or the incoming cabinet of PTI, as the case may be.

National Electric Power Reg­ulatory Authority (Nepra) on Monday reported that distribution companies (Discos) of ex-Wapda were facing Rs170 billion annual loss due to theft and non-recoveries, leading to repeated recurrence of unmanageable circular debt as the government imposed Rs121bn surcharges a year on paying consumers.

In a testimony before the committee, Nepra Chairman Tariq Saddozai said the circular debt could not be overcome unless theft and inefficiencies were reduced and recoveries improved. As a consequence, the consumers may have to bear energy cost of Rs19 per unit instead of the existing average rate of about Rs11.50 per unit.

He said it was strange that the government paid over Rs157bn subsidy in 2015-16 while the regulator had accepted repeated demands of the government to allow it to retain about Rs99bn on account of falling oil prices in monthly fuel adjustments to consumers using less than 300 units per month.

Separately, another Rs80bn allowance was granted to Discos on account of higher losses, prior year adjustments and debt write-offs etc.

At the same time, an additional secretary of the Finance Division told the committee that his division had arranged Rs180bn financing from banks by providing a sovereign guarantee out of which only Rs80bn were paid on account of energy costs while the remaining Rs100bn were paid against capacity payments to the private producers.

Saddozai, FBR and the finance ministry had been called on repeated complaints by Discos before the special committee on circular debt led by Faraz that their financial problems emanated from delayed tariff determinations by the regulator and higher taxes charged by the FBR.

The committee was apparently surprised when Saddozai reported that Discos submitted their tariff petitions with a delay ranging from eight months to over a year beyond deadlines and struggled providing full record. He said the regulator issued five reminders to the Discos to submit tariff petitions but in vain.

He said once the determinations were finally issued, these were challenged through review petitions by Discos, then through reconsideration requests by the government and then stayed by the courts on the request of the government and Discos. Once the court settled the matter in another year, the government then took another five months to formally issue notifications.

Nepra called a meeting of the Discos as to consider how timelines should be reduced but only four out of 10 attended, showing their lack of seriousness. Representatives of the Discos, who were present, during the senate committee’s meeting generally confirmed the contents of the Nepra chairman but some of them quoted their limitations in dealing with multiple regulators like the Securities and Exchange Commission of Pakistan and Nepra who had different requirements.

Faraz expressed his displeasure along with other senators that managements of Discos did not suggest solid proposals for addressing the circular debt issue. He said it was now getting clear that the tariff notifications are being delayed not because of the regulator but because of the power companies.

Central Power Purchasing Agency (CPPA) CEO Mohammad Imran reported that notwithstanding tariff adjustments, losses and recoveries, the CPPA was bound to make payments to power producers for the electricity they delivered to the Discos and delays cause bank borrowing at a higher markup. He said it was ironic that Discos suffered from accounting difficulties.

Faraz said the committee has been constituted to permanently resolve the circular debt issue and it was consulting with all the stakeholders to identify issues behind its accumulation. He asked the Discos to submit within three days their opinions on how the circular debt could be addressed.

Saddozai said under the law, permissible technical losses were 13pc in tariff but these currently averaged 18pc, causing Rs80bn annual losses. The Nepra was allowing 15.3pc losses. After allowing for technical losses, the companies should make 100pc recovery of the remaining 85-87pc electricity, but were recovering around 92pc.

Published in Dawn, August 7th, 2018