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By By Tahir Basharat Cheema

The power sector’s failures are a foregone conclusion with the public facing outages for anything between 12 to 20 hours, depending upon whether one resides in the urban areas or the rural sprawl. Subsequently, commerce and industry are facing a crunch as production dwindles and the livelihood of hundreds of thousands is at stake. According to experts, the national economy has taken a hit of more than 2 percent of the GDP. On the other hand, according to sources, the government of Pakistan has paid roughly Rs1.2 trillion in subsidies to the power sector over the five-year tenure of the outgoing government.

Imagine, what would have happened if the need to provide subsidies had somehow not been there. What could this colossal amount have done for the people of Pakistan? To put it into perspective, the total estimated cost of the 4,500MW Diamer Bhasha dam, spread over 8-10 years, in today’s conversion rate is less than the amount allegedly expended through subsidies during the last five years.

In view of the above facts, it becomes imperative to understand the issue in its entirety and pinpoint the main problems surrounding the power sector. The explanations rife in the market are something to the effect that the issue is a result of the inaptitude and incompetence of professionals working in the sector coupled with nepotism by politicians. There is some truth to this explanation, but the fact of the matter remains that the actual issue is totally different and the above line of thought may be a direct or a tangential result of the actual problem.

What exactly are the problems? Why is it so that presently there remains a huge gap between the revenues collected by DISCOs and the expenditures for generation, transmission of power and lastly the distribution of electricity to the customer mains? The huge gap is alarming when taken into account that 3000MW generation capacity remains idle on average, while the country faces a 5500MW shortfall these days. Similarly, why does the sector owe nearly Rs435 billion to oil marketing companies, the two gas utilities (SNGPL and the SSGCL), other gas exploration companies, IPPs and WAPDA? It is also unconceivable how receivables have reached the astronomical figure of Rs425 billion.

A little insight reveals that even the federal government is not up to mark with its payment of electricity bills and presently owes Rs7 billion to the power sector. Detailed scrutiny leads us to a situation in which, strangely, the federal departments failed to anticipate the level of expenditures and budgets needed to sustain its electricity purchases. Consequently, it becomes almost impossible for them to make the payment on time. Defence installations also fall in this category. However, besides the constant float of nearly Rs5-7 billion, the government’s line departments do eventually clear their bills by leaving the new ones unpaid and so on.

But most do not comprehend that electricity utilities do not operate like normal commercial entities and the margins built-in by the regulator (NEPRA) do not cater for continued non-payments and facility for bridge financing till such time the customers clear their outstanding bills.

Under this heading, the instant study would include the outstanding issue of continued non-payment by the Azad Jammu and Kashmir (AJK) government, which receives around 300MW from PESCO, IESCO & GEPCO. At present, the AJK default has reached Rs23 billion. The AJK government pleads that the government of Pakistan had promised to peg the electricity tariff to a lowly figure of Rs3.29 per unit, while the rest (whatever it was and to whichever height it would reach in the future) of the tariff would be the government’s liability. This issue has been pending a resolution for the past five years, while the sector is forced to reduce its generation accordingly. Both, the power ministry and finance ministry, have unfortunately not been able to do anything to settle the evident breach of rules with AJK receiving its slice of power but not clearing bills which are beyond the Rs3.29 per unit tariff.

Then come the provinces, which have to pay Rs90 billion worth of unpaid bills. Even the province of Punjab, which was very regular in making payments till 2009 has now become a frequent defaulter with payables approximately to the tune of Rs9 billion. The government of Sindh, however, leads the defaulter race holding back over Rs50 billion payables. The standard reply to any query is that the utility bills are incorrect. For the past three years, the provinces have also started questioning the veracity of the billing system and would rather negotiate the payments instead of accepting calculations based on technical parameters. It is also forgotten that the covenants signed between the provinces (the actual offices / line departments) and the electricity utilities at the time of being connected to the electricity mains, duly stipulate that complaints against billing have to be made within a set number of days of receiving receipt of the bills. And it would be illegal, if the bills are simply deferred and converted into huge disputes afterwards.

Similar to federal departments, the utility expenditures of provinces are not appropriately budgeted and nor are there any checks to curtail exploitation in the field. As a check against non-payment by the provinces, the office of federal adjustor was created in the Ministry of Finance, with powers to make at source deductions from the federal outlays for provinces in 1980s. Subsequently, this became dormant and remained so till 2009, when it was revived. However, the rejuvenation of this office was short-lived as the government of Sindh simply moved the Sindh High Court and succeeded in barring at source deductions — a move which shows the disregard of law by provincial authorities.

And so began the long-festering issue of unchecked supply to the Karachi Electric Supply Company (KESC) and its Rs50 billion payables.

Without going into the details of a power purchase agreement (PPA) — mostly considered suspect — we see that the KESC does not make any monthly payment at all to the NTDC, which only receives subsidy amounts due to KESC from the federal government, which at most makes up of about 35% of the total monthly bill. This is regular practice under the pretext that since the federal government is mostly late at making payments for KESC’s supply to its offices. Moreover, the Sindh government is not making regular payments either and the Karachi Local Government also delays payments with the Karachi Sewerage and Water Board, further raising the ante. Therefore, KESC can stop payment to the NTDC — especially since it is also a government-owned entity. The fact that all of these entities have distinct formations without any link with each other and that the KESC receives the supply from NTDC on the basis of a PPA, which does not allow for the recipient to act in the manner which the KESC does, is not enough to deter the privatised utility to change its tactics. On the other hand, one thing is clear: the sector has been deprived of its legitimate revenue to the tune of Rs50 billion, or $500 million, on account of which it is forced to reduce its generation for the rest of the country, without any constriction for the defaulter’s receipt. Being a private entity, one can imagine the clout KESC enjoys — its temerity and the ability to flout rules to hold legitimate payments at will.

This brings us to the issue of purely private customers, who currently owe nearly Rs250 billion to the sector. It is nearly impossible for utilities to disconnect most of these premises, and no one seems to feel awkward about being a defaulter.

Additionally, each month, energy theft adds up to another Rs5 billion worth of losses, while utilities remain unable to take effective measures. This constant hemorrhage is responsible for the further decline in generation capability and thus, directly contributes to the level of load-shedding around us.

In order to stay on track and considering the power sector easy pickings, the Federal Board of Revenue (FBR) has stopped GST refunds to DISCOs and the NTDC with a volume of more than Rs100 billion, by creating counter-claims. Currently, DISCOs are in litigation, with the winners being the lawyers and, to some extent, the FBR management, which could claim higher revenues to its credit. Imagine a withdrawal of Rs100 billion from an already loss-making sector and the subsequent domino-effect on generation. It must also be taken into account that governmental-owned entities are not that proficient when it comes to legal issues; therefore, the rest of the government has to support their operations and not feed on them.

Meanwhile, another important issue can also be taken into account for the power sector’s current condition. Politicos are posting CEOs of various power sector entities at will, negating the principles of merit and causing the appointment of the wrong, or less appropriate, person for key posts. These so-called leaders of the sector are busy in feeding their benefactors instead of serving the public. The mere fact that politicos are able to get away with such maneuvers speaks volumes of the weak state of Pakistan.

On top of everything, monthly fuel price adjustments (MFPA) — taking care of the rise of fuel prices over and above the oil price built in calculations laying out the consumer end tariff and amounting to a whopping Rs80 billion or so — are stayed by the courts. Similarly, bills that are not to the liking of customers are also stayed, in negation to the basic spirit of section 54-c of the Electricity Act.

As the law requires a deposit of the total offending bill with courts or 50% deposit in case the issue is brought before electric inspectors, shelving of the same is greatly detrimental to the utilities and thus directly leads to reduction in the generation level.

Another issue that merits attention is that NEPRA operations are also mired in delays, which cannot be condoned. Tariff petitions submitted in June, 2012, are being only decided in April, 2013, with no one to cater for the uncovered expenditure of the last 10 months or so — an amount equal to a stupendous Rs100 billion. Furthermore, public outcry and opposition to conservation measures is another issue that cannot be ignored. The half-a-century-old Shops and Commercial Establishments Ordinance (accepted, adopted and renewed by all provinces), which requires shops to close at 8:00 pm every day is not implemented. The fact that this measure is able to yield nearly 1,000 MW in reduced demand is simply side stepped.

Therefore, it is observed that the power sector is in a free fall with no one helping it sustain operations. Customers are evading paying bills, and in some cases, indulging in energy theft; the federal government is failing to pay on time; AJK continues to default and provincial governments receive power and seemingly forget to pay bills; FBR considers the sector easy picking and politicos thrive on making undue appointments.

One can post all of the above negatives to the accounts of sectoral professionals. In other words, they would specifically hold DISCOs responsible for not properly billing customers and for the lowly recoveries. However, it must be recognised that utilities are not policing authorities nor do they possess magisterial powers. It is the general writ of the State that allows utilities worldwide to function appropriately.

A deep insight into the above leads us to the conclusion that it is, in fact, the State that is missing in action, and all issues directly emanate out of this sterility and nothing else. Conversely, if the State was strong, governmental customers would pay-up like other consumers, provincial governments would never stop payments, FBR, NEPRA and even the courts would fully adhere to the law, AJK would not insist on a lower tariff, KESC would make timely payments to the NTDC, and the public at large would ensure full payments and adherence to the agreements in place. Conservation would also find its place into our every-day lives.

The recipe for the resuscitation of the power sector remains primarily in enforcing an across-the-board writ of State. Subsequently, everything else would fall into place. Federal and provincial government entities will begin to behave like normal customers, support electricity operations and not act as inhibiting factors. Rogue entities would not be able to break the law, while other issues, concerning the requirement to somehow vastly reduce the cost of service through positive change in the energy mix, fuel mix and even customer mix and other such issues would follow automatically. Capacity additions would take place and with the right persons for the sector, which would eventually start delivering for the benefit of the public.

The writer is president of Institution of Electrical and Electronics Engineers.

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