NEPRA sees cash injection as band-aid for power woes

ISLAMABAD: The National Power Regulatory Authority (Nepra) sees cash injection to ease circular debt in the power sector as a stopgap measure and ineffective until privatisation is promoted to break monopoly of state-run entities and rid consumers of higher energy costs.

Nepra said measures such as injection of cash in the sector would only provide temporary support as long as the real issues are not addressed. Centralised control of power distribution companies (Discos) and public sector generation companies (Gencos) is one of the main reasons for substandard performance and accumulation of circular debt.

“The real dilemma of the sector is that due to continued centralised control at every level the Discos tend to seek shield against any measure, which leads to competition and opening of the sector,” Nepra said in the “State of Industry Report 2019” document. “It is to be understood by the relevant agencies managing and in control of Discos that new concepts of electricity supply and delivery are being introduced at a fast pace.”

Gencos are contributing to expensive energy production due to their inferior efficiencies. The government may consider retiring these plants and/or replace them with efficient power generation facilities, Nepra said.

One of the major contributors to the high cost of electricity generation is the operation of RLNG- (regasified liquefied natural gas) based power plants having long-term supply contracts. Under the contracts, the government is bound to operate them in preference over other cheaper power plants. “It has to compromise overall economic merit order operation of power generation plants most of the times.”

Over the last five years, Discos could not cut transmission and distribution losses. However, only 0.6 percentage points reduction has been achieved in fiscal year 2018/19, as actual losses of Discos were 18.3 percent in 2017/18, which reduced to 17.7 percent in 2018/19. Besides, no significant improvement has been seen in recovery of billed amount during the year, as it achieved only 0.18 percentage points of improvement over previous year, excluding the subsidy. In 2017/18, the recovery was 90.07 percent that a little improved to 90.25 percent last fiscal year.

“The combine impact of these improvements translated into savings of around only Rs10 billion. However, on the face of Rs1.6 trillion circular debt the improvement is negligible,” Nepra said.

The regulator said power sector is under extreme financial pressure due to high cost of electricity supply and poor performance of distribution sector. “Discos’ practice of conducting load shedding on so called high loss distribution circuits may show short term gains, however essentially they will negatively impact overall sales growth.”

The installed power generation capacity of Pakistan stood at 39,145MW as of June last year, of which 36,061MW was connected with the grid, whereas 3,084MW was connected with K-Electric system.

Nepra said the transmission sector has shown improvements to a certain extent. However, constraints for evacuation of wind energy from Jhimpir corridor still prevail. Similarly, power production from newly constructed Guddu power plant had to be curtailed due to transmission constraints, it said.

“Although preparation of short and long-term expansion plans by National Transmission and Despatch Company Limited is one of the main requirements of the Grid Code, this critically important function was completely ignored for the last many years,” it added.

Nepra said the prevailing governance model totally failed to deliver and it would not be out of place to mention that the present problems emanated from centralised control. “Persisting with this model would only reinforce the failure. Therefore, for any recovery of the sector, Discos have to be made independent, while total or partial privatisation of Discos must be undertaken forthwith.”

Nepra said it supports the federal government efforts for the privatisation of two RLNG-based combined cycle power plants at Balloki and Haveli Bahadur Shah, having combined generation capacity of 2,453MW. The proceeds from privatisation would provide critical financial support to the country.

The authority has already determined tariffs of these plants. “In order to fetch maximum sale price out of these, the government would like to make them attractive for the prospective bidders and tariff allowed by Nepra to these power plants is one of such factors closely examined by the bidders.”

Nepra said transmission licences would promote competition in the transmission sector, which is generally considered as a monopoly function.

Related posts