OIC Economies

Pakistan's power sector discourages efficiency, affects businesses

Published 01 Nov,2021 via Dawn - With more than 1.2 million applications pending for new connections despite surplus generation capacity, loadshedding remains prevalent in Pakistan where the existing electricity framework discourages efficiency while business as usual has become unsustainable.

This has been concluded by Prime Institute, a private sector think tank, in its latest “State Owned Electricity Distribution Companies — A 5-year Performance Review” that finds unsatisfactory performance of state-owned power sector Discos and policy reforms.

“Existing framework discourages efficiency, while business as usual cannot continue,” says the report, adding that despite the surplus generation capacity, loadshedding is still prevalent. Performance of state-owned Discos remains lacklustre as they fail to meet regulatory targets for transmission and distribution losses, bill recovery, investment and public safety.

It says the overall loss to the national exchequer due to inefficiencies and bailouts in five years (2016-20) stands at Rs1.355 trillion. This included five years’ financial loss of Discos worth Rs647bn contributing to circular debt and Rs708.4bn subsidy paid out of the federal budget to Discos between 2016 and 2020.

The underlying reason for inefficiencies has been identified as delay in the structural reforms and continuous bailouts by the government, which eliminates the urge for improvement. From 2016-2020, Discos accumulated a loss of Rs452bn in terms of inability to recover billed amount, while a loss of Rs195bn accrued due to outdated transmission and distribution infrastructure.

The underlying reason for T&D losses remains lack of adequate investment on behalf of some Discos while some invested more than the allowed limit. The distribution companies were also found to be in breach of regulatory targets for which small penalties were also imposed but there is still prevalence of defiance. Therefore, the government has to bail out the distribution companies every year to keep them afloat, at a cost of Rs708.4bn.

The report says that despite surplus generation capacity, power outages are still prevalent in the country and consumers face average daily loadshedding of more than two hours in some regions. The report says more than 7.5 million applications for new connections have been filed by the consumers in five years and almost 16 per cent of the applications are still outstanding.Copyright

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