High tariff unlikely to control debt

PM aide lists measures required under reforms drive to tackle circular debt

ISLAMABAD:

Circular debt has haunted every government and same is the case with the current Pakistan Tehreek-e-Insaf (PTI) administration.

It has made efforts to control losses and improve bill recoveries. Still, the debt has continued to surge and it now exceeds Rs2 trillion.

Faulty agreements with the independent power producers (IPPs) are mainly blamed for the hike in electricity prices. Capacity payments to power producers are said to have reached Rs900 billion and will jump up to Rs1.6 trillion in coming years.

A close aide to Prime Minister Imran Khan says increase in electricity tariffs is not a solution and the best remedy could be different measures under power sector reforms.

“We are working to strike a revised deal with the IPPs to reduce tariff and convert MoUs into legally binding agreements,” Tabish Gauhar, Special Assistant to the PM on Power, said while talking to The Express Tribune.

Under the revised deal, the IPPs have agreed on a reduced return on equity, delinking dollar indexation, clawing back some of the excess earnings and sharing them with consumers.

The government will also seek to increase the debt tenor from 10 years to 20 years for more recent projects commissioned or under construction.

Gauhar pointed out that there were several power plants that invested in rupees but their returns were linked with the US dollar and that anomaly was corrected. However, he said those power plants which borrowed from foreign banks would be allowed to continue with the dollar indexation.

Responding to a question as to how foreign investors would react to the renegotiation of agreements with the IPPs, the PM aide said, “This is not unprecedented and many countries take such initiatives if their economies are unsustainable, which is clearly the case with Pakistan’s power sector.”

There has been discussion since long that power distribution companies (DISCOs) should be handed over to provinces for better management. At the same time, it has been argued that provinces do not have the required capacity to run these companies.

Commenting on that, Gauhar said, “We want to hand over power distribution companies to provinces … provinces have been receiving money through the divisible pool and they should run the companies.”

He suggested that provinces could opt for the public-private partnership model for running DISCOs. “This way DISCOs can be run in an effective way. It will not only bring improvement in energy firms but will also attract some investment.”

Another proposal was to split DISCOs into small companies for effective management, resolving the debt problem and reducing losses.

Gauhar advocated the end to inter-DISCOs subsidy. “Why consumers of one distribution company should bear burden of other company’s losses,” he asked and stressed that splitting DISCOs would help end the subsidy.

It has also been proposed to give targetted subsidy to consumers and a survey is being conducted in this regard. The government would give the subsidy on the model of Ehsaas or Benazir Income Support Programme, he added.

However, the adviser emphasied, the best option was that provinces should take control of DISCOs and give subsidy to their consumers.

The government is working on introducing pre-paid cards for power consumers. “We plan to install pre-paid meters for 0.1 million consumers of Peshawar Electric Supply Company,” he said.

Regarding politically motivated appointments on boards of directors of DISCOs, the PM aide said the role of federal government should be limited to policymaking and it should distance itself from DISCOs.

“Major focus should be on appointing capable boards and they should be given the autonomy to run companies through effective policymaking.”

Gauhar stressed that boards of directors should select heads of companies, who would be given performance tasks. If the heads failed to achieve targets, they should be shown the door.

He revealed that the government was studying an offgrid, micro grid model and would enforce it in Balochistan, which would help reduce losses. “If this model succeeds, it will be extended to other parts of the country.”

The government also plans to increase the share of renewable energy from the existing 4% to 30% by 2030. It will take up the matter with the State Bank of Pakistan for the provision of financing to small solar power projects and micro grids.

About liquefied natural gas (LNG)-based power plants, Gauhar said the government wanted to privatise the plants and discussions were under way with banks to convert PSDP funding into project debt.

There were some issues pertaining to interest rate, which would be resolved soon with the National Electric Power Regulatory Authority, he said.

The PM aide backed the call for breaking monopoly of K-Electric in Karachi to safeguard the interest of consumers. However, he said, there should be a policy in place for the entry of other companies and providing a level playing field for all.

Responding to a question about planned acquisition of K-Electric’s majority stake by Shanghai Electric Power, Gauhar said a deal in that regard should be brought under the umbrella of China-Pakistan Economic Corridor (CPEC). The Chinese company should make more investment in K-Electric, he emphasised.

To a question about the receivable and payable dispute between Sui Southern Gas Company and K-Electric, he suggested that the matter should be settled either through a court or arbitration tribunal, which would be binding on all parties.

Published in The Express Tribune, October 16^th, 2020.

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