NEPRA (The National Electric Power Regulatory Authority) has demanded the PM to take notice of the satiation of power sector. It asked for declaration of a national power emergency; the situation requires drastic steps for resolving the matter of circular debt amounting about Rs1.93 trillion. The Regulator claims that the debt is higher than the reported figures. He delivered a presentation on the issue to the PM and said that in the fiscal year 2018-2019, the circular debt has increased by Rs. 492 billion, monthly average being Rs. 41 – 42 billion. Power division has reported monthly average to be Rs. 10 – 12 billion.
Two weeks ago, the power division issued a press release and mentioned the debt at Rs. 1.782 trillion as at December 31, 2019. Later, the total payables of Rs. 1.882 trillion as at January 31, 2020 was reported to Senate Special Committee. The figure included Rs. 807 billion of PHPL debts.
“Government should renegotiate the LNG contracts”, says the regulator
The Chairman discussed the issue of disagreement with the Regulator about the power sector debt. He was accompanied by the top power division leadership as well as the representatives of the World Bank. As per regulator circular debt at December 31, 2019 amounted to Rs. 1.856 trillion and increased to Rs. 1.926 trillion by the end of January 2020.
The regulator reported the amount of circular debt Rs. 492 billion. The debt included an amount of Rs. 325 billion because of the power companies’ inefficiencies. The Rs. 325 billion amount is composed of Rs.132 billion due to under recoveries (90 pc instead of 100pc), Rs.150 billion mark-up because of delayed payments, Rs. 33 billion due to 17.7% losses while the targeted loss has been 15.7%. An amount of Rs. 10 billion is because of the inefficient generation companies.
While discussing the monthly circular debt the regulator reported the lowest ebb of Rs. 3.25 billion in June 2016 and since then it is increasing. In June 2017 the average build up amount was Rs. 10.8 billion, Rs. 25.58 billion in June 2018m and Rs. 41 billion by June 2019. The monthly amount was Rs. 39.67 billion in December 2019 and in January 2020 it was Rs. 42.4 billion.
On basis of above situations the power regulator has demanded the government to take some drastic steps on urgent basis. First thing that the NEPRA demanded is to ban the labor unions so that the recoveries for and from the power distribution companies can be carried on expeditious basis. NEPRA has also demanded the government not to start any imported fuel based power projects.
NEPRA also demanded that there should be a total regulatory compliance based regime for the power companies. Board of directors and mangers of the power companies should be required to improve governance and their focus should be to optimize and close the public sector generation company.
As an easy step; there should be restructuring of loan amounting Rs. 53 billion per year for the eight thermal power plants which include three coal – based, three LNG based and two nuclear power plants.
Another step is deferring the dividend amounting Rs.40 per year. The return component pf pubic sector plants and Rs. 35 billion per annum being profit from net hydle which is collected for provincial payments should also be deferred. All these amounts should be added to the budget. Also the inefficient public sector generation plants should be closed resulting in a saving of Rs. 10 billion. Neelam – Jehlum surcharge being a Rs. 10 billion per annum burden on tariff should be removed. Non electricity tax burden of Rs. 250 billion should be removed. Rs. 175 billion out of the said amount goes to the circular debt.
Regulator calculated that the impact of these steps would be savings amounting Rs. 100 which would be translated in to Rs. 2.72 per unit cost without taxes and Rs. 3.43 per unit cost including taxes for domestic consumers up to 300 units. For industry the rate without taxes would be Rs. 3.87 and including taxes would be Rs. 4.87 per unit.
The regulator suggested the government to arrange sittings with IPPS (independent power plants) and negotiate for discounts in mark ups since 1% reduction would result in a saving of Rs. 1 billion per annum for every 100 billion payable. Payable to IPP as at December 31, 2019 is about Rs. 600 billion.
Above all, the regulator has recommended the early implementation of the renewable energy policy as well as renegotiation of the LNG contracts. The projects include price opening in 2025 and the commitments for quantity commitments by 2030. It also advised that merit order should 100% be followed by the power companies and there should be no excuse for the system constraints. The regulator recommended that “take or pay” contracts should not be there. Federal Government authority should decide the coal price and it should not be within the domain of Sindh Government.
Hydropower projects are the best and long term solutions for rural electrification
As a long term measure big and micro hydropower projects should be promoted in Punjab, Khyber Pakhtunkhwa and Azad Jammu and Kashmir albeit off grid solutions for rural electrification. Loss making distribution companies should be privatized. Prepaid meters should be installed and meter reading and bill collection responsibilities should be outsourced.
NEPRA suggested night operating shifts for the industry so that the peak should be reduced. For increasing power demand special economic zones should be developed. There should be clear bifurcation of the retail and wire business of distribution companies. Regulator also recommended outsourcing of loss making feeders.