Nepra says failing power sector bloating tariffs, circular debt

Israr Khan
Saturday, Oct 01, 2022

ISLAMABAD: The power sector’s poor performance is not only multiplying tariffs for end-consumers but also feeding the monster of the ‘circular debt’ that now stands at around Rs2.253 trillion, the national power regulator said in a report on Friday.

The sector is equally failing in the generation, transmission, and supply.

According to National Electric Power Regulatory Authority (NEPRA) 'State of Industry Report 2022', the power sector cannot become sustainable unless the distribution system is improved by controlling electricity theft, inefficacies, and improvising recoveries. It says the circular debt has been haunting the governments for the last several years without a respite. “The accumulation of the debt was due to higher losses, power theft, inefficiencies, and low recovery of bills from consumers by power distribution companies (Discos),” Nepra reported in its latest report.

Interestingly, Nepra said the government-imposed taxes, surcharges, and fees in bills are not directly related to the electricity sector, these increase the price of electricity.

“Recovering taxes, duties, fees (like TV fee), and other charges through electricity bills raise questions about the role of the relevant departments and delivery, which are unable to directly recover the same from the relevant people.”

The report further says that higher electricity cost also enhances the taxes, and duties which infringe on the basic right to electricity. “It is therefore needed to restructure the electricity billing volume by either eliminating/reducing the burden of unrelated taxes and surcharges from the price of electricity.” The state of industry report said that during the year 2021-22, the allowed transmission of distribution (T&D) losses for the DISCOs were 13.41 percent whereas actual losses were 17.13 percent.

Due to the difference of 3.72 percent, the financial loss on this account has been worked out at around Rs113 billion.

It notes that the performance of the DISCOs is the major concern due to higher T&D losses and less recovery affecting the cash flow with the CPPA-G for onward payments to the transmission and generation companies.

The governance issues in DISCOs are required to be addressed to reduce their losses, which are resulting in enhancing the circular debt. However, no significant improvement has been seen on the part of DISCOs in this regard.

DISCOs recoveries during FY 2021-22 was 90.51 percent as compared to 97.30 percent during FY 2020-21, i.e. almost 7 percent less than the previous financial year.

Necessary steps are required for corrective measures and improvement in the distribution system. The government being the owner of the DISCOs may adopt different strategies which may include but are not limited to the option for the outsourcing of high AT&C loss feeders. High T&D losses and low recoveries are the main causes of the accumulation of circular debt.

The regulator recommended that to turn around the situation, it is required to undertake emergent actions including improving the performance of the public sector DISCOs by privatization or outsourcing their operations and maintenance in public-private participation.