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Think tank disputes govt claims about improvement in power sector

Think tank disputes govt claims about improvement in power sector

ISLAMABAD: A think tank has challenged claims made by the water and power ministry that improvements have been made in power sector by the PML-N government and said the performance of the previous PPP-led government was better.

In a report launched on Wednesday, the Institute for Policy Reforms (IPR) said the government’s claims of initiatives in increasing generation capacity, reducing loadshedding and improving cash flows were not based on data and the situation on ground was quite different.

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The IPR is headed by former planning minister Dr Hafiz Pasha. Former federal minister Humayun Akhtar Khan is the chairman of the think tank and his brother Haroon Akhtar Khan, the prime minister’s adviser on revenue, is a member of its five-member board of directors. Two other members are Dr Khalida Ghous and Ashraf M. Hayat, a former federal secretary.

In its detailed report, the think tank called for joint efforts by all stakeholders to make power sector work better because electricity shortage was a critical issue for people. The report noted that the ministry had been referring to government initiatives and achievements in increasing generation capacity but “so far facts speak otherwise”.

Dr Pasha said the generation and consumption had increased by nine per cent in fiscal 2013-14 but it had resulted from better use of existing capacity upon retirement of circular debt.

“With respect to an increase in generation capacity, performance of the PPP government during 2008-13 was better,” the report said and added that an “increase in capacity has been modest over the past two years”.

“In fact, generation actually declined in the first nine months of 2014-15,” Dr Pasha said and expressed the hope that the China- Pakistan Economic Corridor (CPEC) and hydropower projects could correct the situation in future.

He said the ministry claimed to have ensured uniform loadshedding in the country and that incidence of loadshedding had reduced and become predictable. It also claimed zero loadshedding for industry. “The claims are not valid,” he said and added that the report had come to the conclusion on the basis of government data.

Dr Pasha said loadshedding hours widely varied among power distribution companies (DISCOs). While loadshedding declined to some extent in 2013-14 because of payment of circular debt, there was no improvement in 2014-15. Also, industry continued to suffer power breakdowns.

The think tank noted that the ministry was contesting the National Electric Power Regulatory Authority’s statement that total generation capacity available in the system was not being used and claimed to have done so to reduce generation cost. While that was valid, the government’s rationale seemed to be weak in the face of reduced oil prices, the report said. The unused capacity could have been used because the cost of operation was lower than the economic loss incurred by industrial units due to power outages, it said.

The report also questioned government claims about improving cash flows to help independent power projects (IPPs) and generation companies to maintain sufficient stock of fuel, saying “this claim too is not supported by facts”.

In Jan 2015, it recalled, the country faced a major fuel crisis because the Pakistan State Oil (PSO) did not have the means to open letters of credit in the presence of a high level of receivables.

The report noted that the ministry claimed that it had capped circular debt at Rs320 billion as it had fully liquidated financial claims of the IPPs, the PSO and gas companies. “This claim is valid only if we do not take account of liabilities likely to occur in coming months. Flow of funds in the sector has begun to deteriorate again and the government must heed warning signs.”

Dr Pasha said the government had promised the International Monetary Fund to reduce power sector subsidy by half and had levied a tariff rationalisation surcharge to achieve the target with an expected revenue of Rs100 billion. The surcharge had increased consumer price of electricity by 20 to 33 per cent, he said and argued that it was badly affecting competitiveness of the industry.

Industrial tariff in Pakistan, the report noted, was 23 per cent more than in India and substantially more than in Bangladesh. It said the government had also agreed to privatise three DISCOs.

“The rationale to privatise the efficient units of Faisalabad, Lahore and Islamabad while retaining loss-making DISCOs is flawed”, the think tank argued and advised the government to consider privatising loss-making distribution feeders.

It said the government had quietly introduced several duties and taxes on furnace oil. Estimated additional revenue from the levies amounts to Rs31 billion. It means that consumers do not fully receive pass through benefit of low oil price.

It said the government claimed to have provided sufficient funds to install new grid stations, transmission lines and transformers and that more than two thirds of the bottleneck had been removed. “But a review of the Federal Public Sector Development Programme shows that the funds are insufficient to begin with and that the National Transmission and Dispatch Company (NTDC) has used just 25 per cent of the allocated amount. It creates questions over government priority for transmission and distribution and implementation capacity of the NTDC and DISCOs.”

This situation might limit expected benefits of CPEC-related power projects, the report warned.

Published in Dawn, October 22nd, 2015

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