Islamabad:

The power sector has continued to bleed as the circular pile of debt swells unchecked. Although successive governments have tried to find workable solutions, success has eluded them for years.

The Pakistan Tehreek-e-Insaf (PTI) government, which remained in power from August 2018 to April 2022, left a revolving debt of 1.6 trillion. The debt accumulated to Rs 3.3 trillion during the government of the Pakistan Democratic Movement (PDM) – a coalition of major and minor political parties – which came to power after the PTI administration resigned.

The service group then faced a revolving debt of Rs 3.5 trillion during its short tenure before the general elections. Now, the Prime Minister Shehbaz Sharif-led government has projected that electricity distribution companies (DISCOs) may incur further losses of Rs 589 billion in the current financial year ending June 2024.

Is there a magic wand to solve this debt problem? The answer, unfortunately, is no, experts say, pointing out that the government is currently exploring various options such as privatization, outsourcing or handing over the struggling DICOs to provinces. In this whole saga, the DISCOs are blamed as the main culprit, who have hampered efforts to tackle the challenge. While solar power is widely recognized as a viable solution, these companies are lobbying to block efforts aimed at implementing the net metering plan.

The real problem

The electricity sector has long been plagued by a number of challenges, the most important of which are electricity theft, corporate inefficiency and poor governance. Another problem plaguing the industry is the flooding of power stations, experts point out.

Since the rule of Pervez Musharraf, successive governments have installed power plants without conducting proper due diligence and prioritized thermal electricity over hydropower. While two large dams – Tarbela and Mangla – were built decades ago during the tenure of President Ayub Khan (1958 to 1969), the country has not been able to build such large reservoirs since then. Instead, many thermal units have been created, powered by fossil fuels.

Although Pakistan’s installed power generation capacity has increased from 19,566 MW in 2007-08 to over 41,000 MW in 2023, consumers are reluctant to buy electricity as tariffs soar.

The basic price of electricity was increased from Rs 16 per unit during PTI’s tenure to Rs 30 per unit under the PDM government. Now, the DISCOs are seeking a further hike in tariffs by Rs 5 per unit. To cope with the rising cost of electricity, many consumers have opted for the solar net metering system.

Experts recall that the electricity sector had been separated in line with the commitment to the World Bank, while DISCOs were to be privatised. However, after the breakup of the companies, different governments did not relinquish control over the DISCOs, where the situation has gone from bad to worse.

Now, the government is considering how to meet the challenge. These companies are declarative and hence preferred by the government while ignoring the plight of consumers.

As companies record high losses with low account recoveries, provinces are reluctant to take over their management and even investors seem reluctant to invest in them, deterred by their huge liabilities.

Poor energy mix

A major contributor to the high cost of electricity is the unfavorable energy mix, caused by the failure of successive governments to improve the sector’s performance and increase hydel and renewable energy capacity.

The share of hydropower was around 60% or more till the year 1991 but now it has dropped to 29% due to lack of interest and consent to build new dams.

In contrast, the share of thermal generation has risen to around 50% as governments increasingly focus on liquefied natural gas (LNG) and the introduction of coal-fired power stations.

Imported fuels continued to dominate with LNG gradually gaining a larger share since the start of imports in 2015 under the Pakistan Muslim League-Nawaz (PML-N) government, which ignored domestic gas production that could reduce the cost of electricity. experts argue.

Also, the PML-N administration facilitated the installation of imported coal-fired power plants under the China-Pakistan Economic Corridor (CPEC).

Investment in infrastructure

While different governments have used resources to build new power plants, they have neglected critical investments in distribution and transmission infrastructure.

Consequently, the country now has a large installed power generation capacity exceeding 41,000 MW, but the transmission infrastructure is struggling to supply more than 26,000 MW. In this scenario, consumers are forced to bear higher capacity payments due to lower electricity consumption and infrastructure constraints.

Experts point out that flawed agreements with power plants, which include take-or-pay clauses, have contributed to the exorbitant capacity charges. A survey report reveals that power producers have siphoned off Rs 1 trillion from consumers in view of such deals.

Losses are mounting

The significant losses, estimated to be up to 40%, recorded by the DISCOs have led to a sharp increase in tariffs for consumers. Initially, the National Electricity Regulatory Authority (Nepra) allowed 12.5% ​​loss recovery from consumers, but later the regulator revised the benchmark to 15% through tariff hikes.

Governance issues have also dragged down the performance of power companies, which have often seen the appointment of politically connected CEOs and directors in complete disregard of meritocratic policies.

Boards have persistently failed to enact policies to improve corporate efficiency. Despite warnings from development partners such as the Asian Development Bank and the World Bank, little has been achieved as losses could not be brought under control.

Experts stress that the challenges of the power sector require holistic solutions where the government must put a cap on the installation of new plants, prioritize solar power and address governance challenges to mitigate losses and reduce cyclical debt.

Published in The Express Tribune, May 17^u2024.

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