State of Industry Report released – Power sector under extreme financial pressure: NEPRA

Business Recorder/16-05-2020

ISLAMABAD: National Electric Power Regulatory Authority (Nepra) has accused the Power Division of controlling Distribution Companies (Discos), which use it as a shield, which leads to competition and opening of the sector. The regulator, in its State of Industry Report 2019, has said that the power sector is under extreme financial pressure due to high cost of electricity supply and poor performance of distribution sector. Coupled to the higher costs are shrinking energy sales, which has resulted in higher cost for the end-consumers; further damping energy usage. “Distribution losses and recovery ratio have stayed where they were about five years back. For any recovery of the sector, Discos have to be made independent, while total or partial privatization of Discos must be undertaken immediately,” the report added.

The existing setup, with Pepco assuming central control, is not capable of delivering the necessary improvement in the system and controlling accumulation of circular debt. For arresting circular debt, the accounting measures only would not be enough and structural changes are required to be made. In this respect besides allowing due independence as foreseen under the 1992 power sector reform plan to GENCOs and DISCOs, total privatization or public-private model may be explored by the Federal Government. However, Nepra has backed out from its earlier figures of circular debt of Rs 1.9 trillion, revising it down to Rs 1.6 trillion but adding that its continuing accumulation calls for immediate corrective measures. Nepra, which was hand in glove in destruction of power sector from giving higher tariff to ignoring bad performance of Discos, had in its report maintained that there are many factors, which aggravated over years of bad governance, flawed planning and absence of balanced policies. Therefore, the new government has to face tremendous challenges it inherited from the past.

Although the electricity sector of Pakistan presents complex settings to solve, lessons can be learned from the efforts made earlier. In this respect, measures such as injection of cash in the sector would only provide temporary support as long as the real issues are not addressed. Similarly 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. Nepra says that another major contributor to the high cost of electricity generation is the operation of RLNG based power plants having long-term supply contracts. These plants due to nature of their contracts are required to operate in preference over other cheaper power plants. As a result, system operator is required to compromise overall economic merit order operation of power generation plants most of the times. There are demonstrated innovative solutions to overcome intermittency and forecasting issues once considered as major bottlenecks to induction of renewable(s).

Hybridization of renewable energy power plants is providing answers to many of the concerns for new renewable energy projects. For instance wind and solar or combination of hydro and solar have proved to overcome the intermittency issues while improving the overall capacity factors and efficient utilization of transmission capacity. “The real dilemma of the sector is that due to continued centralized control at every level, the Discos tend to seek shields against any measure, which leads to competition and opening of the sector. 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,” the report maintained. Nepra has recommended that in order to reduce the cost of expensive energy mix, the Federal Government must take an early decision on the fate of inefficient Gencos. The Regulator considers that inefficient power plants are to be retired on top priority. NTDC must continue its work on improving the quality of its network so that constraints are removed expeditiously. Similarly, the overloading of its transformers should be addressed so that no further hotspots are introduced. Its planning and monitoring functions are expected to be swift to timely notify about such conditions.