ISLAMABAD: As the nation braves prolonged loadshedding and the government faces financial problems in purchasing fuel for electricity generation, administrative mismanagement in the power sector is causing an annual loss of over Rs158 billion.

A paper on the power sector prepared by the finance ministry said the government needed to execute reforms to cut the administrative losses in electricity generation units and distribution companies instead of regularly increasing the tariff.

It said the loss in the electricity generation sector amounted to Rs18.6 billion, including theft and leakage of fuel of Rs10 billion. Inefficiency due to mismanagement of the public sector electricity generation plants costs Rs8.6 billion. It said electricity worth Rs60 billion was lost every year in the transmission and distribution system that could be controlled with simple management practices.

The largest contributor to the losses is non-recovery of bills of around Rs80 billion.

The paper said that if the mismanagement and inefficiency at the generation units were controlled the country could save an additional Rs233 billion annually.

An official of the finance ministry said the losses are huge taking into consideration the economic conditions faced by the country, where massive cuts had been made in the development budget.

Of the Rs280 billion development budget for the current year, only Rs180 billion will be spent, whereas the government has released Rs150 billion in April to reduce circular debt and unclog the system.

The paper said that thermal power generation was facing serious discrepancies as the oil-based power plants required 36,000 tons of furnace oil per day to operate at maximum capacity, whereas the handling capacity of ports was about 25,000 tons and the refineries could only produce 3,000 to 4,000 tons.

Besides, 25,000 tons of furnace oil per day is not imported because of a financial crisis arising out of circular debt issues.

The finance ministry observed that reforms introduced in the power sector, including reconstitution of the boards of the electricity distribution companies with professional and consumer groups’ representation, had not been of much success.

Despite generation of 30 per cent more electricity with the same amount of fuel during January-April, 2011, against the same period last year, loadshedding in May is 16 per cent more than last year. There has been an increase of four per cent in electricity generation and seven per cent in demand.

“This shows serious mismanagement in the distribution network,” the official said, adding that there was need for an electricity audit.

The paper said the electricity regulator lacked the capacity and vision to overcome the issues faced by the sector.

“Nepra has not been performing its functions of oversight or research as mandated by law. This has lead to a situation where nobody is performing the function. Nepra also takes ages to determine generation tariffs for the private sector, far exceeding the time limits set by itself for the process.”

It called for initiating a major revamp of the regulator with a large scale induction of professional expertise.

It suggested that the National Electric Power Regulatory Authority should not pass on the cost of theft or losses to consumers because it might encourage them to opt for power theft.

“The point to note is that the capacity situation will worsen in the next 2-3 years as very few projects are in pipeline.”

It highlighted that installed capacity in the country was 21,000MW but the actual operable capacity was 14,500MW in Pepco and another 2,800MW in the KESC system. The capacity has increased by over 2,000MW over the past years and another 1,200MW will be added this year, but the additions are substantially insufficient to meet the expected peak demand of 22,000MW.

The paper said procedural issues in augmenting the capacity of the installed power projects needed to be addressed.

“Loadshedding will continue until the overall economic outlook changes,” the finance ministry paper that is expected to be part of the energy policy said.