News Analysis |
The Senate Standing Committee on Circular debt convened on Tuesday to review the mounting circular debt affecting the country’s power sector. The committee meeting was chaired by Senator Shibli Faraz and was attended by Senators Sikandar Mandhro and Bahramand Khan Tangi. Moreover, officials from Finance, Water Resources and Power Ministries, power distribution companies (DISCOs), Alternate Energy Development Board (AEDB) and other related ministries were present.
He proposed the conversion of most of the country’s tube-wells to solar energy in order to make up for the shortfall of electricity and easing of debt.
In a briefing given to the committee officials from the finance ministry figured the circular debt to Rs514 billion up till December of last year. These included Rs298 billion from the energy sector and capacity dues of Rs105 with the remaining being additional financings.
The officials confirmed Rs180 billion provided to the Central Power Purchasing Agency (CPPA) for market expenditures. Moreover, the committee was informed that the government had provided a subsidy of Rs118 billion and the current year’s subsidy has been set at Rs150 billion taking into account the higher production of electricity.
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However, chairman of the meeting; Senator Shibli Faraz, expressed his annoyance over the absence of Chairman for National Electric Power Regulatory Authority (NEPRA) and directed him to ensure attendance in future meetings.
Senator Shibli Faraz while addressing members of the meeting expressed his alarm over the issue of circular debt plaguing the country. He proposed the conversion of most of the country’s tube-wells to solar energy in order to make up for the shortfall of electricity and easing of debt.
Additionally, the committee took notice of people who are receiving subsidies despite having installed 5-horsepower motors whereas consumers of agricultural tube-wells totaled around 0.37 million.
The Alternative Energy Development Board (AEDB) CEO also briefed the committee in detail while highlighting various areas where interventions were needed to tap the potential of alternate energy. Of note was his proposition of tapping into virgin Balochistan which held more energy potential development than Sindh.
These included Rs298 billion from the energy sector and capacity dues of Rs105 with the remaining being additional financings.
The issue of circular debt is related to improper cash flows within the energy sector, which come under influence of the Distribution Companies (DISCOs). In terms of their performance DISCOs collect consumer tariffs and compensates for while being directed by tariff regulator (NEPRA) and the Federal government in terms of subsidy budgeting.
Consumers are charged a tariff determined by NEPRA to the extent that the differential is collected and the rest is paid to the power distributors. NEPRA exacts numbers on eleven different tariffs for consumers of eleven DISCOs, based on their individual conditionality.
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The problem arises when NEPRA fixes the tariff for state-owned DISCOs on the assumptions of 100 percent recovery and a national average of line losses of approximately 17 percent. However, both these assumptions are far from the ground realities since the average recovery in the past years (2007-2014) has peaked at 89 percent while line losses averaged around 22.24%.
Although the possibility of achieving 100% recovery is unreal according to Pakistani standards due to socio-economic and security conditions. It does not in any way excuse the DISCOs from their duty to raise performance and improve accountability towards achieving more realistic targets for tariff collections and reducing losses.