Oct 22 , 2015
News
For reliable and economic power : Power Ministry and NEPRA reform stressed
ISLAMABAD: In a report issued on Wednesday, the Institute for Policy Reforms has said that both the Water and Power Ministry and NEPRA must reform to provide reliable and economic power to the people.
While the Ministry should improve service delivery, the regulator may strengthen its incentive and penalty mechanisms and exercise greater vigilance. Dr. Hafiz Pasha Managing Director IPR has written the report. In its Annual Report, NEPRA highlights a number of hard and soft infrastructure and governance issues that affect the power supply chain. These issues include power generation, tariff policy, system inefficiencies, transmission constraints, and circular debt. In an advertisement in the media, the Ministry of Water and Power contests most of NEPRA's findings.
Power shortage is a critical matter for the people of Pakistan. IPR advises that all parties must join to make it work better. Based on government data, IPR has assessed the competing findings and claims of the two organizations. It finds NEPRA's position to be too negative while the Ministry is too positive about its own achievements. With respect to increasing generation capacity in the country, the Ministry refers to government initiatives. So far, however, facts speak otherwise. Generation and consumption increased by 9%in fiscal 2013-14, but this resulted from better use of existing capacity upon retirement of circular debt.
With respect to increase in generation capacity, performance of the PPP government during 2008-13 was better. In the last two years, increase in capacity has been modest. In fact, generation actually declined in the first 9 months of 2014-15. CPEC and hydropower projects could correct this in future. The ministry also claims that it ensures uniform load shedding in the country. According to it, incidence of load shedding has reduced and become predictable. It also claims zero load shedding for industry. These claims are not valid. Load shedding hours vary widely among DISCOs in the country.
While load shedding reduced somewhat in 2013-14 because of payment of circular debt, there was no improvement during 2014-15. Also, industry continues to suffer power breakdowns. The Ministry contests NEPRA's statement about not using all of the generation capacity available in the system. It states that they did so to reduce generation cost. While this is valid, their rationale seems to be weak in the face of reduced oil prices. The unused capacity could have been brought in service, as the cost of operation was lower than the economic loss to production units from power outages.
Ministry has claimed that improved cash flow has helped IPPs and GENCOs maintain sufficient stock of fuel. This claim too is not supported by facts. In January 2015, there was a major fuel crisis in the country. It happened because PSO did not have the means to open L/Cs in the presence of a high level of receivables. Ministry states that it has capped circular debt at Rs 320 billion as it now fully liquidates financial claims of IPPs, PSO, and gas companies. This claim is valid only if we do not take account of liabilities likely to occur in coming months. Flow of funds in the sector has begun to deteriorate again. Government must heed warning signs.
Government has committed to IMF to reduce power sector subsidy by half. To achieve the target it has levied a tariff rationalization surcharge. This is expected to yield Rs100 Billion. The surcharge has increased consumer price of electricity by 20% to 33%. This affects competitiveness of Pakistan industry. Industrial tariff in Pakistan is 23% more than in India and substantially more than in Bangladesh. Government has also agreed to privatize three DISCOs. The rationale to privatize efficient units like FESCO, LESCO and IESCO and to keep loss-making DISCOs is flawed. Government also may consider privatizing loss-making distribution feeders.
Government has introduced quietly a number of duties and taxes on furnace oil. Estimated additional revenue from these levies amounts to Rs 31 billion. This means that consumers do not fully receive pass though benefit of low oil price. NEPRA states that restricted transmission and distribution is a bottleneck, which prevents maximum use of production capacity. The Ministry states that sufficient funds have been provided to install new grid stations, transmission lines and transformers and that more than two thirds of the bottleneck stands removed. Review of the Federal PSDP shows that these funds were insufficient to begin with and that NTDC has used just 25% of the allocated amount.
This puts to question both government priority for T&D and implementation capacity of NTDC and DISCOs. This situation may limit expected benefits from CPEC power projects. Ministry does not agree with NEPRA's ranking of DISCO performance. Through its own modeling, IPR agrees mostly with the Ministry's position in this regard. The top-ranked DISCOs are FESCO, GEPCO, and IESCO. The power sector needs concerted effort for improvement. Rather than voice differences, the two pillars of the sector must pool resources and ideas to improve it, the Report added.
Courtesy www.dailytimes.com.pk