Previous wrong decisions hindering improvements in the energy sector?

ISLAMABAD: Pakistan’s energy sector has shown little, if any, sign of improvement in decades due to the irreversibility of past poor decisions, including agreements signed under the China-Pakistan Economic Corridor (CPEC) that favor independent power producers (IPPs), in combined with net metering policies has enabled solarization, thereby burdening remaining consumers with ever-increasing tariffs to meet full cost recovery targets set by multilateral lenders including the International Monetary Fund (IMF), the World Bank (WB) and the Asian Development Bank ( ABD).

Moreover, as informed sources told the correspondent, there is an element of low efficiency of the “generalists” sitting in the Energy Division, imbalance in investments in the system, politically supported company management boards, almost zero level of reforms, lack of cooperation of provinces against theft and massive corruption, and unrealistic goals set by “donor” agencies.

This was the gist of briefings with retired power sector officials, experts and the private sector who were now demanding tariff rationalization.

Energy production in Pakistan fell by almost 14% y/y in April

Currently, the power sector’s cyclical debt is over Rs 2.6 trillion due to transportation and distribution (T&D) losses as the actual T&D losses are much higher than the allowed T&D losses for 2022-23, which is 12.21%.

The energy sector regulator, Nepra, being a public sector organization, showed bias towards government entities which resulted in no punitive action being taken for non-compliance with the instructions.

regulator; however, it maintains that it continues to draw attention to governance issues in discos that need to be addressed to limit losses resulting in the build-up of circular debt. However, in some discos there is no significant improvement in this respect.

The bureaucrats in the Energy Department are familiar with the sector’s weaknesses but have no countermeasures due to their low ability to deal with chronic problems. Their main interests are foreign trips, board memberships, and cars from subsidiary companies, despite receiving monetization from the federal government.

The ministers in charge of the Energy Division have no technical background and rely entirely on the advice of bureaucrats or people of their choice whom they bring in from other departments on “confidential matters” or “personal matters”.

Electricity sector experts argue that successive governments focused mainly on increasing generation capacity for political reasons and personal financial interests. Therefore, the national transmission system is still unable to transmit more than 26,000 MW of electricity, even though the demand is approximately 34,000 MW or 35,000 MW, the reliable capacity is 36,000 MW and the installed capacity is 39,000 MW.

Company Management Boards; i.e. Discos and Gencos are usually selected because of their connections with senior members of the current government serving top bureaucrats in the Power Department, rather than because of their qualifications and professional capabilities. For this reason, society is faced with increasing energy problems every day.

The latest example of the failures of the Energy Division is the recognition of the Boards of Discos, which were established on the basis of the recommendations of the “PDM-1 government”, and which were deemed ineligible to appoint new Boards in the “PDM-2 government”.

The Power Division recently projected that given the dire state of affairs, discoms may incur a loss of around Rs 589 billion in the current financial year. However, no action was proposed against those bureaucrats or the concerned ministers who recommended and approved the names of people on the boards of these discos. International financial institutions such as the WB, IMF and ABD are demanding tariff increases to minimize losses, but have not yet refused to grant loans due to dismal performance. Some WB-funded projects came under close scrutiny because the procurement process was not transparent.

According to experts, another aspect of the dismal performance of power distribution companies is the lack of provincial cooperation in the fight against power thieves, especially in Sindh, KPK and Balochistan.

One sector expert suggested to this correspondent that the Department of Energy be handed over to experts from the power sector and the establishment of an Energy Advisory Council (PAC) that would advise the government on the same basis as the Economic Advisory Council (EAC), adding that the performance of the power sector could destroy the economy or revive it.

Other experts have suggested privatizing power sector companies or handing over their management contracts to the private sector, while another opinion is that as the government continues to fund K-Electric (KE) with public sector funds, the privatized discoms will continue to be a financial institution burden on state budget.

They also suggested that investments should now focus on improving distribution and transmission systems, and the government should abandon investments in generation, especially those based on imported fuels.

“Currently, falling demand and rising electricity prices are resulting in further inflation. Capacity payments and price rationalization are key issues,” said another expert.