Centre plans DISCOs’ handover to provinces

Comes up with proposal on fears circular debt may jump to Rs3 trillion

ISLAMABAD:

The federal government has proposed an ambitious roadmap for transferring 10 power distribution companies (DISCOs) to provinces, as it fears that power sector’s circular debt may jump to Rs3 trillion without addressing the issue of bad governance.

The Ministry of Energy has sent a position paper to Prime Minister Shehbaz Sharif and four provinces for handing over control of DISCOs, mostly loss-making, to the provinces.

“Circular debt has already reached Rs2.5 trillion and it is feared that another Rs500 billion may be added owing to theft and non-recovery of computed bills by 10 DISCOs,” the energy ministry wrote in the paper.

The admission that theft and line losses alone will add Rs500 billion to the debt indicates that the International Monetary Fund’s (IMF) approach of “fiscalisation” of power-sector losses by solely increasing tariffs will not end the flow of circular debt.

In a bid to conclude an IMF deal, the government has already conceded to recover an additional Rs325 billion from the electricity consumers by increasing prices. Both sides have also been negotiating the IMF’s demand to impose a debt servicing surcharge of Rs3.82 per unit as a permanent feature to settle the circular debt.

The revised Circular Debt Management Plan, which the cabinet has already approved, shows a reduction of only Rs12 billion in circular debt by reducing line losses of the 10 companies.

The Ministry of Energy, in the position paper sent to the four federating units, has suggested a six-month timeline for giving control of these “bleeding elephants”, details showed.

The ministry underlined that the recovery of bills had been a constant challenge since long that resulted in the accumulation of circular debt. The current legal and administrative structure of electricity distribution entails the role of provincial governments.

“It has been observed that the provincial governments view the operations of DISCOs as purely a federal function and hence do not lend requisite support, primarily for the collection of bills from defaulters,” said the paper.

“Performance of DISCOs cannot improve without the active participation of provincial governments,” stated the energy ministry.

It added that in the present situation where the country was facing the toughest economic challenge in its history, it “is all the more important that the management of DISCOs is handed over to another entity since it is very difficult to oversee their performance at the ministry level”.

All governments have been using the DISCOs as a means to achieve their political objectives and have themselves blocked their privatisation in the past.

The fresh roadmap has been prepared after the government of Sindh approached the centre with the proposal to hand over control of two DISCOs – Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (Sepco).

Hesco incurred 28.06% distribution losses in the last fiscal year as against the National Electric Power Regulatory Authority’s (Nepra) target of 18.6%. Similarly, Sepco sustained 35.6% losses against the permissible limit of 17.14%, contributing to the build-up of circular debt.

However, the transfer of these entities to provinces will not solve the problem until it is decided to end the uniform tariff policy, under which an honest consumer of Islamabad pays for theft in Sukkur and Karachi.

The energy ministry underlined that the governments of Punjab and Khyber-Pakhtunkhwa had also shown a positive response. But the government of Balochistan has regretted. Quetta Electricity Supply Company’s distribution losses amounted to 28.1% in the last fiscal year as against the permissible limit of 14.3%.

The energy ministry has proposed a highly ambitious plan of handing over these companies to provinces within six months. The next step is a meeting between the prime minister and chief ministers of provinces within seven days of sharing the paper.

The position paper talks about convening a special meeting of the Council of Common Interests (CCI) six days after the meeting with PM and then signing a memorandum of understanding with the provinces within six days.

The ministry sees technical-level consultations and data sharing with provinces and agreements on the principles of transfer in 64 days. Only 30 days have been earmarked for getting approvals from the federal cabinet and Nepra and another 32 days for hiring technical advisers.

The ministry sees business transfer agreements in 26 days after the hiring of transaction advisers. Implementation agreements are planned to be signed within 15 days of the transfer of business agreements.

Implementation agreements will cover the power purchase agreement, tariff differential subsidy agreement, interconnection agreement and fiscal adjustment agreement.

However, the Power Division has not yet been able to resolve the issue of K-Electric sale with Shanghai Electric Power over the past seven years. It has also been unable to finalise new agreements with K-Electric.

“Provinces are in a better position not only to reduce line losses but also to arrest the trend of electricity theft and improve recovery,” said the paper.

 

Published in The Express Tribune, February 25^th, 2023.

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