Policy Research Institute of Market Economy’s (PRIME) new report, “State owned electricity distribution companies: A performance review,” finds the performance of state-owned power sector distribution companies unsatisfactory and recommended policy reforms.
The distribution companies are continuously accumulating losses, which amounted to Rs. 1355 billion in five years (2016-2020). The report highlights the underlying reason for inefficiencies, such as delay in the structural reforms and continuous bailouts by the government, which eliminates the need for improvement.
From 2016-2020, the report highlights that the distribution companies accumulated a loss of Rs. 452 billion in terms of inability to recover the billed amount, while loss of Rs. 195 billion was accrued due to outdated transmission and distribution infrastructure.
The underlying reason for transmission and distribution (T&D) losses remains the lack of adequate investment on behalf of some distribution companies, while some invested more than the allowed limit. The distribution companies were also found to be in breach of NEPRA targets, and for which small penalties were also imposed, but there is still a prevalence of defiance. Therefore, the government has to bailout distribution companies every year to keep them afloat, which incurred a cost of Rs. 708.4 billion in the stated period.
Despite the surplus generation capacity in the country, there is still a prevalence of power outages, and consumers faced average daily load-shedding of more than two hours in some regions. Consumers also faced disruption in services for which complaints were registered, and some distribution companies received large complaints, thus depicting low consumer satisfaction.
Public safety is an important component of the performance evaluation and the incidence of 680 fatal accidents in five years displays a grim picture and non-compliance of safety protocols. Furthermore, NEPRA also appears unable to ensure the implementation of safety protocols.
The report displays delays in the provision of new utility connections to the public depending upon the size of the population. Total pending connections stood at 1.2 million in five years. These delays can be attributed to the underutilization of surplus generation capacity.
The report recommends that government should undertake policy and technical reforms for higher efficiency of the sector. Therefore, a sustainable framework is needed for power sector reforms starting with complete or segment-wise privatization of state-owned entities, review of tariff regime to reflect costs, and better implementation of policies through more empowered and resourceful NEPRA.
Besides policy reforms, attention is also needed towards the up-gradation of the entire distribution infrastructure to curb losses.