Monday September 25, 2023

Nepra power tariff hike to prove another landmine laid by PTI

June 04, 2022

ISLAMABAD: The determination about rebasing of electricity tariff by Nepra was due some 4-5 by months back, but the regulator announced it on June 2, 2022 with Rs7.91 per unit increase, raising queries if a delayed hike in tariff was also a PTI-laid landmine for the new government as it would certainly serve the economy but at a political cost.

Power sector experts are questioning whether the delay in determination by Nepra is by design or not and if the new government is able to handle it. "In case Nepra, showing efficiency, had given its determination 4-5 months ago on time, then the previous PTI government would have faced the wrath of masses, not the new government," said Rafique Ahmad Shaikh, Member Sindh, Nepra, in a dissenting note. Member Sindh Nepra said the delay in tariff ultimately would cause suffering for the power sector as well as the end-consumers.

However, Nepra said the DISCOs' late submission of petitions asking for increase in electricity base tariff led to the delayed announcement. Here the question arises as to why the regulator did not exert pressure on DISCOs to submit their petitions on time?

Now, the incumbent government, experts are of the view, is facing the music for the sins it didn’t commit and it was also compelled to hike petroleum prices by Rs60 per litre just in 7 days on account of the sheer breaching of IMF programme's terms and conditions by the PTI government which, on February 28 instead of increasing the fuel prices as was suggested by OGRA, announced to scale down the price of petrol and diesel by Rs10 per litre each and reduce power tariff by Rs5 per unit through PM’s relief package. All economists are in agreement that the ex-PM had laid the landmines for the new government.

The sitting government wants to rejoin the IMF programme to avoid default as the country is left with foreign exchange reserves of just $9.7 billion. The then prime minister Imran Khan had also announced to cap the price of petrol and diesel with reduction of Rs10 per litre till June 30, 2022 just for political gains when he was 100 percent certain that his days were numbered as the prime minister.

Member Sindh in Nepra, in his dissenting note on determination about rebasing of electricity tariff for 2022-23 with increase by Rs7.91/unit, mentioned about the consequences of the delayed determination, saying at the outset, the multi-year tariff determination which he was signing was for the control period from fiscal year 2020-21 to 2024-25 with the two years of its control period already lapsed.

Timely tariff determinations depend on submission of the petition by DISCOs within the given time. He didn’t keep himself away from criticising Nepra for not pushing the DISCOs to ensure timely determination. However, he says, in sheer disregard of timelines given in the Nepra Guidelines for Consumer End Tariff-2015 as well as the Authority's direction, DISCOs have failed to submit their petitions in a timely manner which reflects their indifference to the regulatory discipline.

For the period from July 2020, beyond the tariff control period of the last determined tariff, the Authority has been issuing the quarterly adjustments under the given mechanism. Such adjustments, though cover the cost increase to a larger extent but not suffice to cover the entire financial impact.

Therefore, he was of the opinion that quarterly adjustments beyond the tariff control period are highly undesirable and should not be allowed. It is a fact on record that Nepra has been allowing huge amounts to DISCOs under the head of investments for upgrade transmission and distribution losses and quality of supply corresponding to the allowed investment.

Therefore, a comprehensive audit of DISCOs is necessary to check the utilization of funds allowed under the head of investments. The overall recovery position of DISCOs is also below the desired level. As a result, the country is facing circular debt and despite certain bailout packages, the circular debt is on the rise and currently stands at more than Rs2.5 trillion.

To get rid of the circular debt issue, immediate actions are needed which may include structural changes in ownership and control of the DISCOs. This has also been highlighted in the last many years that the performance of DISCOs has been marred with serious governance issues.

Loadshedding on account of Aggregate Technical and Commercial (AT&C) losses is one of the classic examples of poor governance. Instead of improving their distribution network, checking the theft of electricity and improving recovery, DISCOs have found an easy way of indiscriminate loadshedding at feeder level. This AT&C based loadshedding is a stumbling block in improving the sales growth of DISCOs. This is a fact that sufficient generation capacity is available in the country, mostly on a take or pay basis. The AT&C based loadshedding is making the consumers suffer in the shape of not having electricity as well as increased electricity cost due to payment of unutilised capacity. He was of the considered view that the burden of capacity payments due to underutilisation of power plants caused by DISCO level loadshedding should not be passed on to the consumers. DISCOs are allowed a sizeable amount for payments on account of pension and other post-retirement benefits, which are being increased on a year-on-year basis. Although, under the agreed terms and conditions, these payments are binding but not a direct cost of product, i.e. generated electricity. Had the pension fund been established earlier in a timely manner to meet this obligation, the burden of these payments on consumers could have been avoided.

The present centralised control of DISCOs has shown its inherent tendency for inefficiency and unless developed as independent corporate entities, autonomous in their business decisions, DISCOs will continue to burden the power sector. Therefore, immediate actions are needed to revamp DISCOs and free them of centralised control. Member Sindh in Nepra said it’s time to either privatise DISCOs or transfer them to public-private partnership as independent businesses in a competitive environment.