The federal government is grappling with the task of devising a strategy to tackle the ongoing power sector crises, with conflicting signals emerging from the Prime Minister’s Office (PMO) regarding the future of Distribution Companies (Discos).
Under Prime Minister Shahbaz Sharif’s leadership, the government appears undecided between two proposals: outsourcing Discos to the private sector through long-term concessional agreements or transferring control of Discos to the provinces.
According to insights from power sector experts and officials familiar with Discos’ privatization, the government must consider implementing differential tariffs for Discos regardless of the chosen strategy. This approach is deemed necessary as the current practice of allocating over Rs 500 billion annually from taxpayers’ funds to equalize tariffs nationwide is unsustainable. This funding essentially subsidizes Discos that incur substantial losses due to collusion between staff and consumers.
While the National Electric Power Regulatory Authority (NEPRA) determines differential tariffs based on Discos’ performance, the federal government’s policy of maintaining uniform tariffs across the country aims to avoid political backlash or potential conflicts with provinces regarding theft management.
The federal government has allocated over Rs 900 billion as subsidy to Discos and K-Electric for the current fiscal year, aiming to keep circular debt at a manageable level. However, delayed subsidy releases have led to an increase in circular debt, currently standing at around Rs 2.6 trillion.
The lack of a clear policy decision regarding Discos’ future tariff structure poses challenges. If Discos are transferred to provinces, differential tariffs become necessary to ensure fairness among consumers in different regions. Otherwise, the burden of financial losses and theft-related costs in one area falls unfairly on consumers elsewhere.
Salman Amin, Member of the Competition Commission of Pakistan (CCP), suggests that if uniform tariffs are maintained post-provincialization, the federal government should deduct subsidies directly from the respective province’s National Finance Commission (NFC) share.
The government’s decision not to appoint the International Finance Corporation (IFC) as the Transaction Advisor for Discos’ privatization reflects ongoing deliberations and differences in stakeholders’ opinions. Instead, the formation of a Technical Working Group aims to expedite the process while addressing technical aspects.
Some experts advocate for long-term concessional agreements with experienced entities in the energy sector, rather than handing over Discos to provinces lacking such expertise.
In summary, the government faces a complex challenge in formulating a coherent strategy to address the electricity crisis, balancing financial sustainability, regional fairness, and operational efficiency in the power sector.
Story by Mushtaq Ghumman
