Keeping power sector financially viable a challenge: task force member

ISLAMABAD: The major challenge for the government is to make the power sector financially viable and operationally sustainable as no investor is willing to invest as they know that at present the government is unable to pay them the returns on their investment in dollar terms.

The eight-member task force on the power sector constituted on August 4, 2024, on the directives of Prime Minister Shehbaz Sharif meets every day in Rawalpindi and is secretly working on various proposals to bring down the tariff to the maximum. “The task force is bound to come up with its doable recommendations on six issues in one month’s time,” one of the members of the task force told The News.

Apart from making the power sector financially and operationally sustainable, increasing the demand for electricity by stimulating growth in the country, reducing the capacity payments being paid to IPPs and resolving the issue of circular debt stock in the energy sector are the priority areas of the task force for the recommendations to be submitted with the prime minister in one month.

However, inefficiencies in the power sector continue to reign supreme and this can be gauged by the fact that the electricity bills recovery has dwindled to 88 percent showing the bitter fact that the system is braving 12 percent losses just in recovery. One percent loss is tantamount to Rs40 billion which means the system is braving an annual loss of Rs480 because of failures of the electric power distribution companies (DISCOs). More importantly, almost 10-15 percent of the overbilling is also included in 88 percent recovery, top official sources told The News.

The annual losses including theft stand at Rs589 billion which are done in connivance with the officials of the DISCOs and if the sector turns efficient and manages to recover up to 95 percent against the 100 percent, it would help reduce Rs280 billion. If they are reduced by Rs 300 billion per annum out of Rs 598 billion, the tariff can be reduced by Rs 3 per unit. Similarly, the government is charging Rs100 billion as the return on equity (REO) on its projects and if it is done away with, then a further Rs1 per unit can be reduced. And in case the power sector loans of Rs765 billion are declared the country’s loan, then the government will get the space to further slash the tariff by Rs7 per unit without hurting the IPPs.

To a question, he said that circular debt has reduced to Rs2.352 trillion (well within limits prescribed by IMF) from Rs2.6 trillion after paying the outstanding dues to the IPPs. However, with the massive hike in the power tariff, the menace of the circular debt is very much there leading to an increase in losses and theft.

Coming to the IPPs, he said, it is pertinent to mention that during the PTI regime, the then government supported, by the establishment, had negotiated with IPPs set up before and under 1994, 2002 and got a relief of Rs835 billion till the remaining period of their PPA by locking the dollar value at Rs148. Now the incumbent regime is once again inclined to further negotiate with the IPPs asking them to end their Power Purchase Agreements (PPA) amicably so that the capacity payment burden could be reduced. The lifetime of PPAs of IPPs established in 1992, 1994 and 2002 stands for 25 to 30 years. The task force is seriously working to end PPAs of at least five Gencos with a capacity of 2500 MW, introduce a Competitive Trading Bilateral Contract Market by looping in IPPs whose PPAs have expired and bring them into the system on take and pay mode.

Furnace oil-fired IPPs whose PPAs are for 30 years include 1292 MW Hub with COD (commissioning of date) of March 31, 1997), 362 MW Lalpir commercially commissioned on November 6, 1997, 365 MW Pak Gen on February 1, 1998) 136 MW Gul Ahmed on November 3, 1997), 120 MW Japan Power on March 4, 2002), 131 MW, Kohinoor on March 1997, 134 MW Saba on December 31, 1999, 117 MW Southern Electric on July 12, 1999), and 126 MW Tapal on June 20, 1997. However, IPPs whose PPAs are for 25 years include 165 MW Attock Gen, LSFO commissioned on March 17, 2009, and 225 MW Atlas on December 18, 2009). 200 MW Nishat on June 9, 2010), 200 MW Nishat Chunian commercially operational on July 21, 2010, 200 MW Liberty Power on January 13, 2011, and 200 MW Hubco Narowal started generating electricity on April 22, 2011.

The main challenge is how to cope with capacity payments of IPPs installed under the 2015 policy and the power plants installed under the CPEC umbrella. The government is in touch with the Chinese government for reprofiling the loans for 8-10 years through the payments in tariffs.