ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has asked the prime minister to declare a national power emergency and take drastic steps for scaling down about Rs1.93 trillion circular debt which, according to the regulator, is significantly higher than reported by the power division.
In a recent presentation to the prime minister, the regulator reported that circular debt had increased by about Rs492bn during the fiscal year 2018-19 at a monthly average of about Rs41-42bn, as opposed to Rs10-12bn per month being reported by the power division.
In a press release issued two weeks ago, the power division put the overall circular debt, including fresh payables and old stock parked in the PHPL (Power Holding Company Limited) at Rs1.782 trillion as of Dec 31, 2019. Later in a presentation to a Senate Special Committee, the power division reported total payables at Rs1.882tr as of Jan 31, 2020, including PHPL debts of Rs807bn.
In the presence of top power division leadership and representatives of the World Bank, Nepra Chairman Tauseef H. Siddiqui is reported to have told the prime minister that the regulator disagreed with the power division’s reports of circular debt reduction, bill collections and system improvements. The regulator reported total circular debt as of Dec 31, 2019 at Rs1.856tr which increased to Rs1.926tr by end-January.
The regulator reported that Rs492bn circular build-up included Rs325bn born out of inefficiencies of the power companies. This comprised Rs132bn under recoveries (90 per cent instead of 100pc), Rs150bn mark-up on delayed payments, Rs33bn because of inability of the power companies to meet 15.7pc target for losses and instead facing 17.7pc actual losses and Rs10bn due to inefficient generation companies.
The regulator also reported that monthly circular debt touched the lowest ebb of Rs3.25bn in June 2016 and had since been increasing. The average build-up amounted to Rs10.8bn by June 2017, followed by Rs25.58bn by June 2018 and then Rs41bn a month by June 2019. It slightly reduced to Rs39.67bn by Dec 2019 and went up again to Rs42.4bn in Jan 2020.
National power emergency
The power regulator has advised the government to declare a power emergency to take a series of steps on urgent basis. Under this emergency, Nepra has suggested a ban on labour unions for ensuring and enhancing recoveries for and from distribution companies and proposed that there should be no imported fuel-based power projects.
According to Nepra, all power companies should be switched to total regulatory compliance-based regime and their managements and boards of directors should be fixed on war footing to improve governance and focus on optimisation and closure of the public sector generation company.
It advised that some low hanging fruits should be plucked immediately by loan restructuring of Rs53bn per year for eight thermal power plants, including three LNG-based, three coal- based and two nuclear power plants.
Also, the government should defer about Rs40 per year dividend and return component of public sector plants and Rs35bn per annum net hydle profit being collected from consumers for payment to provinces and the amounts should be shifted to budget and inefficient generation plants in the public sector should be closed for a Rs10bn saving.
Moreover, Rs10bn per year burden on tariff should be removed through putting an end the Neelum-Jhelum Surcharge. The regulator has also advised the government to abolish non-electricity taxation burden of Rs250bn of which Rs175bn is going to circular debt.
Based on these steps, the regulator has estimated that the impact of savings of around Rs100 would translate into Rs2.72per unit without taxes and Rs3.43 per unit with taxes for up to 300 units of domestic consumers or about Rs3.87 per unit on industry without taxes or Rs4.87per unit with taxes.
The regulator has also asked the government to sit with the independent power plants (IPPs) for renegotiations on mark-up on delayed payments as 1pc reduction would provide a saving of Rs1bn per year for every Rs100bn payable. At present about Rs600bn delayed payments are currently payable to the IPPs as of Dec 31, 2019.
On top of that, the regulator has also advised fast tracking the implementation of renewable energy policy and renegotiation of LNG contracts for price opening in 2025 and quantity commitments by 2030. The power companies should be made to follow 100pc merit order without any excuse to system constraints.
Moreover, it has also advised that there should be no “take or pay” contracts. The regulator has also suggested that Thar coal price determination should be made by the federal government authority and not by the Sindh government.
Over the long term, the regulator has advised promotion of big and mirco hydropower projects in Khyber Pakhtunkhwa, Punjab and Azad Jammu and Kashmir besides facilitation of off-grid solutions for rural electrification and net metering. Also, it has recommended early privatisation of loss making distribution companies and installation of pre-paid meters and outsourcing of meter reading and bill collection responsibilities.
Nepra has also suggested that industry should be asked to operate at night to reduce peak and special economic zones should be developed on priority to increase power demand.
Likewise, the retail and wire business of distribution companies should be bifurcated and loss making feeders should be outsourced.
Published in Dawn, March 2nd, 2020