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Mismanagement caused energy crisis

Pakistan’s fuel and power sector regulators have told the visiting IMF mission that the country’s energy crisis is due to inefficient policy making by the relevant ministries.

Both the Oil and Gas Regulatory Authority and the National Electric Power Regulatory Authority blamed the ministry of petroleum and natural resources as well as that of water and power for all ills in the energy sector – especially regarding the increase in volume of stolen gas (unaccounted for gas – UFG).

The fact that the relevant ministries and both the regulators – Ogra and Nepra – were not on the same page in their stances has put the government in an embarrassing situation in front of the IMF.

A top official who attended the meeting said that the Nepra chairman Khawaja Naeem came down heavily on the Ministry of Water and Power. He argued all ills in power sector lay not with the regulator – but with the main ministry as it does not confine itself to the rules of business.

He said that law says the tariff should be efficiency based, but the government is adamant about enforcing a uniform tariff across the country. This encourages inefficient electric distribution companies – who then come up with more losses in the following year. Consequently, every year the situation gets more worse..

Right now the tariff is enforced keeping in view the most efficient electricity distribution company – the Islamabad Electric Supply Company. So the ministry of water and power is responsible for all the mess in power sector not the regulator. The solution lies in the strict adherence of the rules of business.

The aggressive Nepra chief also told the IMF that power sector can easily be turned around – if the corrupt mafia is reined in and inefficiency managed in Gencos and Discos.

Continuing on, Mr Khawaja Naeem said that if the government manages to erase the existing circular debt in 60 days it will again emerge by up to Rs 260 billion just because of continuing irregularities and inefficiencies. The ministry of water and power has not even charge sheeted any official on these counts.

He said: “We – as a nation – waste 40 percent electricity every year that we can save through the conservation exercise.” The Nepra chief also opposed the recent increase in tariff arguing the volume of theft would rise and will exacerbate the deteriorating situation further.

Naeem also told the IMF that electricity worth Rs 40 billion gets stolen every year. At present the unrecoverable amount is Rs 70 billion plus the interest to IPPs on late payment. The amount in the head differential tariff has risen to Rs 394 billion.

Speaking about the fuel adjustment issue, the Nepra chief said that in the yearly tariff, fuel cost of Rs 56000 per ton is added. If fuel prices are on the higher side – the remaining cost gets passed on to consumers.

In this regard, the existing average price of fuel for next year’s tariff – which hovers around Rs 76000 per ton – would be included in the power tariff. The fuel cost changes would be adjusted according to the rise and fall.

The official said that on the issue of UFG, visible differences had emerged between Ogra and ministry of petroleum and natural resources. Ogra has said that it has fixed the UFG at 4.5 percent following a recent court decision. However the existing volume of UFG stands at 11 percent meaning that gas worth $ 2.5 billion was wasted in the head of UFG (lines losses and theft of gas).

The ministry said in the meeting that the government wants Ogra to increase the target of UFG somewhere between existing 11 percent and 4.5 percent as the gas utilities are in deficit and will not be able to run its operations if the solace to gas utilities on UFG is not extended. The representatives of the Ministry of Petroleum and Natural Resources argued because of this very factor Sui Northern alone has sustained the loss of Rs6.5 billion.

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