Worsening energy crisis

Attention: open in a new window. PDFPrintE-mail

Weekly Updates - Traders' Diary

WHILE energy crises have become a sort of inalienable fact of life, the electricity shortfall is expected to be worse than ever this coming summer owing to fuel problems arising from liquidity crunch and water shortage.

The Indus River System Authority has estimated the water availability during ongoing cropping season would be 20 per cent lower than average while Pakistan State Oil (PSO) has informed the government that it may not be able to arrange fuel imports for May-August period because of time constraints and serious financial problems.

While the largest fuel supplier has already defaulted in domestic and international payments for more than five times in recent weeks and paid penalties, it has reported the current stocks would last only for few weeks even with a scaled down supplies of 15,000 tonnes per day and result in complete dry out and disruption in supply chain in the second week of May. The power sector needs at least 28,000 tonnes per day of furnace oil to utilise its full thermal generation capacity.

The ministry of water and power has informed the caretaker prime minister that it would require more than Rs109 billion for May-June-July period with an average of little over Rs37 billion per month to enable the PSO to arrange 28,000 tons per day of furnace oil because the peak summer demand was estimated to go beyond 18,000mw from current generation of about 8,000mw.

The demand for diversion of gas supplies to power sector has not materialised despite government decisions at the top level because of enhanced consumption in industrial sector.

With 8000mw of current generation, most of the rural areas are currently facing unannounced load shedding in excess of 16 hours per day, according to a senior power sector manager. “With current state of affairs — gas, fuel and water shortage — we will have to affect 18-20 hours of announced load shedding in peak summer”, he said.

While the caretakers would have little incentive to plan for the future owing to huge funding required out of federal budget, the new elected government would face a challenging task at the start of its tenure and limited options even for fire fighting.

The reform process has failed to take off in the power sector owing to years of neglect despite well-known worsening problems.

According to a joint study recently carried out by the Planning Commission and the US Agency for International Development, the power sector deficit for the current fiscal year has been estimated at Rs592 billion against last year’s Rs220 billion. The study has estimated an annual average tariff increase of 7-14 per cent over the next five years to overcome chronic circular debt.

According to Chairman of Planning Commission Dr Nadeem-ul-Haq, the study on circular debt is just a beginning and there are many important questions which are needed to be answered through indigenous research to come up with effective recipes to resolve the issues bleeding the sector since long.

Dr Haq believes the corporate power entities are required to be run in a corporate culture with zero interference from the government instead of being micromanaged by ministers and prime ministers.

The monstrous circular debt has swelled mainly because of the non-collection of the revenue of Rs384.5 billion, losses on account of Rs72.2 billion owing to delay in tariff notification, Rs53.3 billion due to non-implementation of fuel price adjustment, Rs292.91 billion because of tariff differential subsidy; besides Rs69.55 billion losses were not allowed to be recovered.

Identifying the reasons for over 45 per cent system losses (from generation to bill recovery), the study noted difference in rates of generation companies; delays in tariff determinations and notification, line losses beyond Nepra’s limits, failure in recovery of bills, and payment of penalties to IPPs as well as interest on existing loans taken by state-owned power sector.

The report demanded raise in the notified tariffs up to the level of minimum determined tariff (MDT) and then gradually moving to differentiated tariffs in some of the Discos, if not all. The recommendation has already been adopted by Pakistan Muslim League-N as its election manifesto.

The argument is that notification of differentiated tariffs as determined by Nepra can also be done in a phased manner starting with Lahore’s, Faisalabad’s, Gujranwala’s and Islamabad’s power utilities as their determined tariffs were in proximity to each other and allowed required increases to be in a phased manner.

Introducing differentiated notified tariffs in four Discos and raising the tariffs for other five to the maximum of these four (except for less than 300 unit residential slabs) will reduce the tariff differential subsidy (TDS) gap by about 14 per cent. Next step would be to bring these five Discos to a minimum tariff.

Raising the tariff to MDT and introducing differentiated notified rates in five Discos would cover 66 per cent of the tariff differential. In three years, the losses in the four Discos, that have higher service cost, can be brought down to reduce the level of determined tariffs to, in turn, reduce the TDS.

The federal government has also been lax in passing appropriate legislation to curb electricity thefts, promote energy conservation, increase commercial transparency, strengthen regulatory entities, and promote an open and competitive energy market.

The government continues to appoint the Board of Directors (BoDs) of the Discos; political and bureaucratic influences continue to limit the BoD’s independence and technical and management competency.

The study stressed that the current level of debt prevents sector entities from obtaining funds to streamline management and system operations and from attracting investment to expand and improved services.

Forex open Market rates & comments Archive

Login Form