Saturday, September 23, 2017

News / Event Detail
Posted on: Friday, January 3, 2014
After resolution of around Rs 500 billion circular debt earlier in July this year, the much-dreaded inter-corporate power sector circular debt has again reached over Rs 225 billion within the last 4 months. The PML (N) government had claimed credit for the early clearance of over half a billion rupees circular debt of the power sector as an immediate step towards resolving the power crisis soon after assuming power. It was to be a one off measure to reduce the scourge of long electricity outages all over the country. The much touted new Power Sector Policy, on which the ruling party had started working even before taking over the reins of the government formally, was expected to offer some lasting solutions to the crippling energy crisis which, apart from causing insufferable miseries for the common people was hurting the country's economy badly with a loss of over 2% in the GDP. 

The Power Policy 2013, which was announced with much fanfare, even though belatedly, claimed to offer both long- and short-term solutions which included switching to cheap coal-based generation, cutting down transmission and generation losses, plugging pilferage of oil in public sector generation and improving recoveries from private and public sector defaulters to improve the financial health of the public sector entities in the power sector. The governance in the Gencos and Discos was planned to be improved by revamping the managements and bringing in more empowered and professional BoGs and CEOs. 

The policy document, however, failed to impress the experts as it didn't come up with any new credible plans and sounded more like a wish list rather than a well conceived policy which needed to be followed up with specific projects. The professional expertise deficit at the Ministry of Water and Power remained unattended and there was no mention of the proposed Energy Ministry to ensure an integrated energy policy and avoid unnecessary inter-ministerial squabbles between ministries like the Water and Power and the Petroleum and Natural Resources. 

The three immediate measures taken by the government included clearance of the circular debt resulting in the addition of 1700 MWs to the system by the IPPs, an effective campaign against electricity and gas theft at least in Punjab and the increase in consumer tariffs to bridge the gap between the cost of generation and the sale price of electricity. With the end of summer months and drop in the peak demand of power, the supply-demand gap narrowed down and loadshedding was significantly reduced. The efforts aimed at wooing foreign investors to invest in the new power projects were also initiated, even though our track record of unreliable and inconsistent policies and unpredictable judicial interventions can hardly be reassuring to any foreign investors. 

The government has yet to demonstrate its capability to resolve the power crisis in a sustainable manner. Paying the IPPs dues through deficit financing could be a life-saving emergency measure but, with our fragile financial position, cannot be a part of regular treatment. Unless the power sector's fundamental issues are addressed in a systematic manner, such quick fixes do not offer any hope for solving the problem on a lasting basis. Printing notes and paying up the influential tycoons owning the IPPs was a no brainier. The recurrence of the circular debt was always on the cards unless the generation mix could be altered to reduce reliance on the expensive furnace oil and electricity theft could be controlled. The Government which had earlier recovered billions of rupees from power sector defaulters with the assistance of NAB has now reportedly stopped them to proceed further in the matter. Has the influential electricity and gas theft mafia forced this decision on the Government? Clearly this doesn't augur well for the sector. Without wholehearted and persistent campaigns, the power theft will continue and only the poor law abiding common citizens will keep paying the unaffordable tariffs. 

The power policy now needs to focus on the inherent fault lines in our power supply chain. Unless we attract the requisite investment and ensure the implementation of much-needed power sector governance reforms in a short period, we will soon find ourselves in the same grind of exceedingly expensive electricity with prolonged load shedding in the summer with disastrous consequences for the country's economy. While the recent grant of GSP Plus status for Pakistan affords us an opportunity to boost our exports by 1 to 2 billion dollars to the EU, the same is possible only if the industry is provided uninterrupted power and gas supply at affordable prices. 

The government, realising the slip shod work done in Power Policy 2013, is reportedly revisiting it and the Planning Commission has been tasked to come up with a more comprehensive and meaningful policy document. We need to recall that the earlier Power Policies of 1994, 1998 and 2002 have all either failed (1998) to achieve any results or only partially succeeded (1994 and 2002) by picking the low hanging fruits of adding to private sector generation at a huge cost to the country in total disregard for the type of technology used or the cost of fuel .The earlier policies failed to alter the generation mix or upgrade the public sector entities efficiency. 

Learning from the past mistakes, the policy makers will be well advised to come up with a framework which focuses on maximising the public sector capacity and efficiency by optimum allocation of available gas and Furnace oil to various plants, bringing on board all the provinces to support investments in hydel power projects, augmenting the gas resources through removing bottlenecks in the supply of imported gas and LNG and taking effective demand side management measures through educating the domestic consumers for conservation and making regular energy audit schemes for industrial and commercial concerns compulsory. 

(The writer is a former Federal Secretary, Director Centre for Policy Studies at COMSATS and former Chairman Nepra)


Source: http://www.brecorder.com/articles-a-letters/187:articles/1266885:circular-debt-genie-again-out-of-the-bottle?date=2013-12-2