The energy sector poses one of the biggest challenges the country faces today.
It stands out as the biggest drain on both the national exchequer and the public purse. The inability of successive governments to turn around the power sector on a sustainable basis has, in fact, become a source of national disgrace.
The circular debt continues to build on. Its root cause continues to be high and stubborn system losses. No effort will ever succeed unless this black hole of an aggregate 25 per cent loss is plugged. That roughly translates into a Rs450 billion revenue loss per annum at the current rate.
Repeated tariff increases have only had an add-on impact so far, resulting into a vicious cycle. Imagine a situation where average electricity sale rates increased from Rs12.50 per unit in 2017-18 to Rs17.60 per unit in December 2019 — the latest applicable rate — showing an increase of Rs5.10 per unit or 41pc.ARTICLE CONTINUES AFTER AD
Despite this, the overall circular debt increased from Rs1.13 trillion in June 2018 to Rs1.93tr at the end of 2019. This is a whopping Rs800bn or 71pc jump, according to the power-sector regulator.
Average transmission and distribution (T&D) losses of about 18.5pc were contributing Rs185bn to the circular debt per annum about two years ago. The losses have since come down by about two percentage points. However, the overall contribution of 16.5pc T&D losses to the circular debt now works out to be about Rs280bn, up Rs95bn, as the power rates have increased.
An even bigger problem lies in unreliable data in the official domain. As opposed to the data released by the National Electric Power Regulatory Authority (Nepra) — which cannot be brushed aside as it approves the accounts of all power companies — the government officially confirms that the overall circular debt was Rs1.78tr at the end of 2019, reflecting a 34pc increase from Rs1.33tr since September 2018 when the PTI government came to power.
The difference between the debt figures being claimed by the Power Division and Nepra works out to be Rs144bn. Such a massive discrepancy brings the authenticity of power-sector data into question. Nepra publicly confirms that about Rs500bn-Rs600bn additional allowances have been built into the consumer tariff over the past 18 months or so.
The Power Division claims that the total circular debt (by the end of 2019) included Rs978bn owed to both public and private power generators besides the liabilities of Power Holding Private Ltd (PHL) — payable to banks for loans taken in the past to pay generators — amounting to Rs804bn.
Nepra puts the circular debt amount (as per the Power Division’s definition) at Rs1.12tr, which is owed to both public and private power producers, and confirms the PHL debt at Rs804bn. The Power Division also claims credit for tariff rationalisation, recovery drives, anti-theft campaigns and system modernisation.
“Due to these measures, the addition is expected to be reduced to Rs130bn in 2019-20 as per the circular debt capping plan,” the Power Division said two weeks before Prime Minister Imran Khan announced that energy rates would remain frozen until June. That acts as a brake on the debt capping plan at least for now.
In a report finalised at the end of 2019, the Power Division found the net power sector receivables had increased by about 27pc in 18 months. Net receivables of all distribution companies (Discos) increased to almost Rs1.04tr from Rs817.5bn at the end of June 2018, showing an increase of 27pc or Rs220bn. Total private-sector receivables during the period also increased 24pc to Rs830bn from Rs670bn, a rise of Rs160bn.
Data showed that receivables increased 137pc from the federal government that was driving the power-sector efficiency and recovery drive. As such, receivables from the entire public-sector consumers increased almost 41pc to Rs206.2bn at the end of 2019 as opposed to Rs146.84bn in June 2018. As if that was not enough, receivables on account of government subsidies also increased 25pc to Rs121.5bn from Rs 98bn.
On the other hand, total recoveries against total billing in July-December 2019 declined by almost 1pc to 92.5pc from a year ago. The recovery against the billing of seven out of 10 Discos dropped during the first half of the current fiscal year. About Rs76bn against the total billing of Rs923bn could not be recovered during the six-month period.
Also, the total billing for July-December 2019 increased almost 24pc to Rs923bn against Rs744bn a year ago, which indicates a higher tariff impact. Total collection in July-December 2019 amounted to Rs847bn against Rs677bn in the same period of the last fiscal year, an increase of 25pc.
Data also revealed a continuous increase in the amount of receivables from habitual defaulters. The amount stood at Rs477bn at the end of June 2019, but went up by about Rs48bn to Rs525bn at the end of December 2019. The amount was Rs405bn at the end of June 2018.
