The National Electric Power Regulatory Authority (NEPRA) has reportedly urged Prime Minister to declare a national power emergency to bring down the Rs. 1.93 trillion circular debt.
According to NEPRA, the circular debt had increased Rs. 492 billion during FY 2018-19 at a monthly average of Rs. 41 billion against the Rs. 12 billion monthly average claimed by the power division.
The increase in monthly circular debt was at its lowest in June 2016 when it went up by Rs. 3.25 billion. It has been on the rise ever since.
The increase in monthly circular debt was recorded at Rs 10.8 billion in June 2017, Rs. 25.58 billion in June 2018, and Rs. 41 billion in June 2019. In December 2019, the per month circular debt decreased slightly to Rs. 39.67 billion before surging to Rs. 42.4 billion in January 2020.
The Rs. 492 billion circular debt includes Rs. 325 billion resulting from the inefficiencies of the power companies, as per NEPRA.
The breakdown of Rs. 325 billion is:
- Rs. 150 billion mark-ups on delayed payments
- Rs. 132 billion under-recoveries
- Rs. 33 billion due to inability to meet 15.7% target for losses (losses stand at 17.7% currently)
- Rs. 10 billion due to inefficient power companies
NEPRA’s claims contradict the power division that reported a circular debt of Rs. 1.782 trillion on December 31, 2019. The circular debt surged to Rs. 1.882 trillion as of Jan 31, 2020, as per the power division.
National Power Emergency
NEPRA has suggested the following measures under the national power emergency:
- A ban on labor unions for ensuring and increasing recoveries from distribution companies.
- All power companies should be transformed to a total regulatory compliance-based regime.
- Management and board of directors of power companies should be optimized to improve governance.
- A complete ban on imported fuel-based power projects.
- Annual loan of Rs. 53 billion for 8 power plants should be restructured immediately.
- The government should defer the Rs. 40 billion annual dividends and return component of the public sector power plants.
- The government should shift the Rs. 35 billion annual net hydel profit to the budget, collected by consumers to make payments to provinces.
- Inefficient public sector power generation plants should be closed to save Rs. 10 billion.
- Neelum-Jhelum surcharge should be abolished as it puts an annual burden of Rs. 10 billion on the consumers.
- The government should also put an end to the non-electricity taxation burden of Rs. 250 billion, Rs. 175 billion of which goes to circular debt.
- The government must renegotiate mark-up with the independent power plants (IPPs) as a 1% reduction would save the government Rs. 1 billion annually for every Rs. 100 billion payable.
- Implementation of renewable energy policy and renegotiation of LNG contracts should be expedited.
- The price of Thar coal should be determined by the federal government rather than the Sindh government.
- The government should facilitate the off-grid solutions for rural electrification and net metering.
- Loss-making distribution companies should be privatized at the earliest while loss-making feeders should be outsourced.
- Pre-paid meters should be installed while outsourcing the meter reading and bill collection responsibilities.
- The retail and wire business of distribution companies should be bifurcated.
- The power industry should operate at night to reduce peak.
- Special economic zones should be completed on a priority basis to increase power demand.
- The government should also actively promote big and micro hydropower projects in Khyber Pakhtunkhwa, Punjab, and Azad Jammu and Kashmir.
Based on these measures, NEPRA envisages savings of Rs. 100 billion that would translate into Rs. 2.72 per unit without taxes and Rs. 3.43 per unit with taxes for up to 300 units of domestic consumers or about Rs. 3.87 per unit on the industry without taxes or Rs. 4.87 per unit with taxes.