NationalVOLUME 19 ISSUE # 46

Beyond IPPs: Fixing Pakistan’s power sector through reforms

Though taking on the challenges related to IPPs would be very difficult, there are many other important areas in Pakistan’s power sector where the government could take relatively much easier steps. Ironically, however, these critical areas are neglected due to lack of political will, bureaucratic inefficiency, and systemic ineptitude.

For example, imbroglios of electricity theft, system losses, and poor bill recovery are the clear reflections of deeper failures in governance, primarily the operational inefficiencies and external political influences besetting the country’s distribution companies known as Discos.

Incompetence, corruption, and inefficiency in the power sector push its circular debt ever higher. State-run power consumers will not get new electricity price increases besides July’s 51%, though that is small consolation to go by reports saying circular debt is going to be Rs2.8 trillion at the end of the fiscal year with an increase of Rs417 billion.

By June, it had already crossed the Rs2.38 trillion debt figures more than the commitment given to the IMF and a roof determined by the federal cabinet through the Circular Debt Management Plan 2023-24.

Accumulation of this debt has many reasons like efficient power generation, poor distribution infrastructure, ineffectual tariff policies, low recovery rates, rampant electricity theft, and significant system losses. Major reforms have been pledged to the power sector by successive governments that failed repeatedly.

This crisis very much is a governmental failure because the central role the government assumes in policymaking, regulation, power generation, and distribution.

The inefficiency of this administration is also being bankrolled by the middle and lower classes of society, not only in terms of electricity bills but through extended hours of loadshedding. This assumes a more acute form with the extremely defective revenue-based power cut system whereby areas that suffer high theft and little revenue recovery lose out on supply. Not only is this system both illegal and ineffectual in terms of reducing pilferage but also results in the wrongdoings of crimes like theft regularly falling onto the account books of innocent consumers.

For example, independent power producers have thus far received billions of capacity payments that never added a single kilowatt hour to the power supply in the country based on the nature of their contracts. The government is working on this, trying to balance reform with the need to continue private sector investment which is essential for long-term economic growth.

While the IPP-related issues are a complicated job, there are other power sector issues where government action may be easier but stalled only due to a lack of political will, bureaucratic inefficiency, and general ineptitude.

Serious governance problems are what characterize the inability of the Discos to effectively deal with this phenomenon of electricity theft, reduce system losses, and improve bill recovery. Most Discos often handle large consumer bases under pressure from political forces, which result in inefficiency.

Power distribution companies, or Discos, lost 16.4% of the electricity purchased from power generation companies during the fiscal year 2022-23 due to technical losses and theft, according to a state of industry report issued by Nepra in June. In this scenario, the circular debt crisis is only going to worsen. Upgrading the ageing T&D infrastructure could be considered a huge contributor to these losses.

Estimates suggest that over 60% of Pakistan’s T&D network is older than its designed lifespan, thereby causing among the highest T&D losses in the world. Governance reforms at the Discos are therefore paramount in helping to stabilize their operations and restore financial sustainability in the power sector-in an effort to put an end to the constant problem of circular debt.

This wasteful practice of passing on costs to consumers has, therefore, been ineffectively done, and bureaucracy in the power sector needs to understand that comprehensive, all-embracing reforms are the only solution to this continuing crisis.

Pakistan’s power sector desperately needs comprehensive reforms. This is a practice sustained for far too long, and unless improvements are seen in transmission and distribution infrastructure, governance at the Discos, and efforts to curb electricity theft, only the level of circular debt will continue to increase. While the challenge is daunting, there is no alternative to wide reforms for the country to find restoration of financial stability within its power sector and relief for its citizens from the burdens of inefficiency and mismanagement.

However, immediate solutions to the inefficiencies and high costs of power productions are needed to prevent more blows to the system.

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