FeaturedNationalVOLUME 16 ISSUE # 04

Overcharging powerless consumers

The common people have chronic complaints of overbilling against power distribution companies. Successive governments have rubbished their gripes but a recent government report has proved that they are right and the companies overcharge consumers to cover up their inefficiencies and losses.

It is to the credit of the Pakistan Tehreek-i-Insaf (PTI) government that it has initiated reforms in all sectors, which were long overdue. Pakistan’s power sector is plagued by electricity shortages, circular debt, and expensive power purchase agreements with private producers. The result is that electricity has become unaffordable for domestic and industrial users. It also compromises Pakistan’s competitiveness in exports. Structural issues, such as high transmission and distribution losses, power theft, unpaid bills, corruption, and mismanagement are covered up by overbilling by the distribution companies. The National Electric Power Regulatory Authority (NEPRA) has also blamed the distribution companies (DISCOs) for overbilling consumers to cover up their inefficiencies and high system losses. In its “State of Industry Report 2019,” the national regulator warns that continuation of the existing policy of loadshedding in “high loss” areas stifles sales growth and increases energy costs. “Backtracking from the reform agenda and not following it in letter and spirit would leave the power sector in complete tatters and the negative drag of the public sector resulting from poor governance would not only bring the sector down but also result in further slowdown of the overall economy of the country,” it warns.

The overall receivables of all companies increased by Rs248.85b — 50pc higher than the receivables of Rs166.26b in FY2017-18. As on June 30, 2019 the overall distribution sector receivables stood at Rs1.145tr against Rs896b at the start of the financial year. The regulator notes that continuation of the power division with the centralised control of day-to-day operations of public sector entities has led to unacceptable levels of technical and financial performance. “It is disappointing that in spite of regular directions and advisories by the regulator to the licensees and the relevant ministry, public sector entities have not been provided with any degree of control as required under the reform process.”

The report says the energy ministry had claimed a 15.5pc higher amount in recoveries over the last year’s amount collected. Interestingly though, the units sold had increased by only 2.16pc over the last year while the amount billed was 13.22pc more than the last year. “Further review reveals that the incremental amount billed is mainly due to an increase in consumer end tariff, whose notification had been pending since 2015-16 and subsequently notified in March 2018”. Therefore, at the national level, the companies have shown meagre improvement in recoveries and losses and largely maintained the last year’s level in these areas.

Sudden dips have occurred during the last two years in percentage losses in the months of November and February. The losses declined from October and shot up sharply in December. Similarly, losses took a dip in January and registered a steep rise in March. Both trends are difficult to explain except that some adjustments are made by the companies to show improved results for their loss position. “The overbilling issue still haunts the consumers of electricity. The companies are still involved in systematic manipulation of electricity units to manage their distribution losses which are factually higher. They could not reduce their overall transmission and dispatch losses. Statistics for over the past five years showed that only a slight reduction of 0.6 per cent was achieved in FY2018-19 as compared to the losses of the previous year.

No significant improvement in the performance occurred in the area of overall revenue recovery as the recovery ratio in FY2018-19 (without subsidy) improved by only 0.18pc over the previous year. The improvements combined translated into savings of around Rs10 billion — insignificant over a portfolio of Rs1.6 trillion. Six better performing companies — Islamabad, Faisalabad, Gujranwala, Lahore, Peshawar and Hyderabad — went down while Tribal, Multan, Sukkur and Quetta showed little improvement in recoveries.

For any improvement, the foremost parameter to focus is energy sold. Over 6pc increase per year was achieved for units sold from 2015 to 2017. During FY2017-18, the units sold registered an increase of over 12.5pc but sharply declined to around 2pc during FY2018-19. A healthy growth in energy sold is key to the survival of the power sector as it would help bring the capacity costs down which would lead to the lowering of the overall energy cost. The power sector is under extreme financial pressure due to a high cost of the electricity supply and poor performance of the distribution sector. Coupled with the higher costs are shrinking energy sales which have resulted in higher costs for the end-consumers, further damping energy usage. The vicious circle has to be broken to expect any upturn in the sector. Consequently, the federal government has to grapple with diverging objectives of the viability of the entities and affordability of consumers to pay higher tariffs.

The report has come at a time when the government has signed a new agreement with the independent power producers (IPPs), whereby the cost of electricity generation would be brought down and circular debt reduced. The government’s next reform target is the power distribution system. However, reforms will not succeed without fixing the distribution companies and ensuring competition at the retail level. The best option is to privatize them, which will improve their performance significantly.