Inefficient Gencos contribute Rs17.73 bn to circular debt

ISLAMABAD: The inefficient public sector power generation companies (Gencos) that have below 35 percent of production capacity, have also emerged as one of the main contributing factors in the whopping circular debt that has reached Rs455 billion.

The electric power generation companies have inflicted colossal loss of Rs17.73 billion during years 2012, 2013 and 2014 that also emerged in circular debt, reveals a performance evaluation report placed on National Electric Power Regulatory Authority (Nepra) website.

During the said years, the said Gencos in the head of auxiliary consumption and standby mode wasted 1.540 billion units of electricity valuing Rs17.73 billion. According to data of the independent power producers (IPPs), circular debt stands at Rs414 billion excluding Wapda receivables. A Wapda official said its receivables have swelled to Rs41 billion. This means that circular debt stands at Rs455 billion. However, Minister for Water and Power Khawaja Asif says circular debt stands at Rs385 billion.

The Ministry of Water and Power says that existing power tariff regime which is based on 100 percent recovery is the main reason for the perpetual emergence of circular debt. The ministry has pitched the same argument in meeting of the cabinet committee on energy chaired by the prime minister. 

However, Nepra says the regulator wants 100 percent recovery of billed amount which is not an uphill task. The regulator says that it has allowed power distribution companies (Discos) to charge 15.2 percent line losses which include administrative, technical and more importantly Discos have also been allowed to charge from the consumers for the losses incurred on account of law and order situation. The one percent loss means Rs15 billion damage to the power sector and this means that Discos are fleecing Rs225 billion from the power consumers under the head of losses. 

“The government still wants to include more losses up to 18 percent in the tariff which is sheer injustice to the consumers,’’ says Nepra which has the main mandate to safeguard the rights of the electricity consumers.

Joint Secretary (Power) in the Ministry of Water and Power Zargham Eshaq Khan confirmed to The News that the third party has suggested including in the tariff 18 percent losses and the same has been suggested to the electric power regulator. However, the ministry is not exerting the pressure on Nepra, rather it has suggested as recommended by the third party.

When asked if this is the issue that has become of one of the reasons that has led to the government-Nepra wrangling owing to which the government wants to introduce changes in Nepra Act, Zargham said that this is not the reason. However, he said that if 18 percent losses are permitted in the tariff, then the appearance of huge amount in the circular debt will not continue to appear.

Mentioning the inefficiency of Discos, Nepra while referring the receivables of power sector ending December 2016, the dues of the running defaulters which are needed to be paid to the Discos have mounted to Rs335 billion.

The running defaulters are said to be very influential and chronic defaulters, which have posed the challenge to the authorities. The documents shows that in 2014-15, the dues of running defaulters stood at Rs318 billion which has now swelled to whopping Rs335 billion.

“If Discos manage to tame running defaulters who owe to pay mammoth amount of Rs335b, the power sector cash flow situation can improve to large extent.” The regulator says that land revenue can be very fruitful in recovering Rs335 billion from running defaulters saying it is low hanging fruit to pluck.

All the governments in the past including the sitting one are not inclined to give tough time to the chronic defaulters on account of their influence in the corridors of power. In addition, there are disconnected defaulters who are supposed to pay huge amount of over Rs63 billion.

The running defaulters which are supposed to pay the mammoth amount continue to use electricity. However, the Ministry of Water and Power says that no doubt, the running defaulters are one of the biggest problems as almost many of them have got stay order against their dues which is why Discos are unable to get back the arrears. 

The document also shows that Discos wanted not to pass on the relief to consumers for the months of February and March 2017, but it was the regulator which passed on the relief of Rs33 billion to consumers under monthly fuel adjustment. Discos wanted to use Rs33 billion for building up the stock of fuel for electricity generation. However, the documents also show that under the monthly fuel adjustment mechanism, Nepra was pressurised to transfer Rs406 billion from March 2015 to the government by not fully passing on to end consumers the impact of decrease in fuel prices recorded in the international market, but the regulator put up the resistance before the move.

However, keeping in view the losses and inefficiency in recovery, the regulator accommodated the government to some extent and provided relief of Rs217 billion out of Rs406 billion during the period from March 2015 to December 2016. This means that the regulator extended the relief of Rs189 billion to consumers during the said duration. The government also wanted the more raise in permissible losses but the regulator toeing the line of Supreme Court did not budge before the government’s pressure asking for passing on to the consumers the operation inefficiency of the power sector.

Nepra had determined the electricity tariff at Rs10.90 per unit for 2015-16 based on year-on-year adjustment, but the government continued charging Rs12.33 per unit showing that it has been charging Rs1.43 per unit from the consumers in the whole 2015-16. Joint Secretary (power) Zargham Eshaq Khan says that under the tariff of Nepra, the cost of generation of electricity cannot be recovered and the issue is in the court.