‘Outages, circular debt threaten
economic growth’
ISLAMABAD, Nov 19: With system losses as high as 39 per cent and
generation capacity utilisation as low as 14 per cent in some of the power
companies, the National Electric Power Regulatory Authority has found outages
and circular debt threatening to “derail the feeble economic growth”.In its
annual report 2011-12 submitted to the Council of Common Interests (CCI) on
Monday, Nepra said the power sector was “experiencing one of the worst crises
of its history” as outages and deteriorating circular debt issue, if not
appropriately remedied, threatened to derail the frail economic growth.The 172-page report gives an impression of a charge-sheet against the federal government and the management of power companies. In some cases, it has only confirmed what was generally well known but officially understated. For example, it said:
“Pakistan is facing an acute electricity shortage with public being forced to stay without it for more than 9-10 hours in some cities and around 16-18 hours in many rural areas. It is estimated the country was losing 2-3 per cent of its GDP due to power shortage, which may increase. The deepening power crisis has forced many businesses to close down.”
The regulator attributed the severe energy crisis to lack of integrated energy planning and demand forecasting, imbalanced energy mix with heavy reliance on oil and costly imports, non-utilisation of vast indigenous resources, lack of effect project structuring planning and implementation of identified and viable projects.As a result, the shortfall of power in Pakistan averaged 5,000MW as many power plants were generating electricity at half their capacity because of fuel-related issues. “The severity of loadshedding is persistent and violent protests have become a routine in different parts of the country that affected industries and businesses”.
The country spends billions of dollars per year on import of crude oil and petroleum products which has increased the cost of generation and raised circular debt, leading to higher power rates. “Further, the power system is afflicted with corruption and inefficiency.” The situation has aggravated to such an extent “that the survival of Gencos, National Transmission and Dispatch Company and distribution companies is at stake”.
While oil and gas companies were not getting payments from power companies, it has become difficult to arrange fuel for electricity generation, the independent power producers have either minimised power production despite surplus capacity and have simply shut down because of non-payments. “All these factors have led to a situation where it is virtually difficult to attract new investment.”
While identifying some of the issues, the report said: “The overall reform and restructuring process in the power sector initiated in the 90’s has also not been able to progress steadily and is still in a quagmire.”
Some other issues included inability of the power sector to pass on the full cost of generation to the consumer and timely payment of the difference between the applied tariff and the determined tariff in the form of subsidy.
It said the circular debt had continued to rise due to inability of the distribution companies to pay to the generating companies which in turn could not make payments to the fuel suppliers. At the same time the adverse changes in the generation mix emanated from proportionate decline in the share of hydropower and shortage of gas and increasing reliance on expensive fuel oil. The report also noted poor efficiency of the public sector generation companies and governance issue at distribution companies.
DOWNSIDE OF KESC SALE: The report said the Karachi Electric Supply Company has not been able to run its plants to full capacity due to the declining supply of gas. “The KESC has not been able to arrange the required quantity of fuel from the market to operate these plants on alternative fuel due to its weak liquidity position directly linked to the circular debt crisis owing large payments to Pepco and the fuel suppliers”.
It said the KESC at times failed to operate at its peak capacity “to avoid purchasing expensive furnace oil, preferring instead to purchase cheaper electricity from the Pepco/NTDC system. This was clearly a downside of privatising monopolies as fully integrated entities in an environment where the market was not competitively structured”. The dispute between KESC management and its labour union has further added to the problems.
GAS ALLOCATION: Nepra said the allocation of natural gas for the power sector has declined to a dangerous level, hardly sufficient to produce electricity matching the installed capacity. “The severity of the issue can be gauged from the fact that 2002 power policy only 4 IPPs were set up and that too with an annual commitment of gas for 9 months for four years and gas companies were not willing to extend or renegotiate.”
Over the years, the percentage of electricity generation using natural gas has declined. “This trend requires a complete reversal in order to keep the tariff reasonable for end consumers.”
It said the twin issues of adding generating capacity and stemming losses on account of pilferage and theft is a daunting task as also un-metered agricultural supplies enabled utilities to park all losses into transmission and distribution.
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