The federal government has suggested an ambitious plan for transferring 10 power distribution companies (DISCOs) to provinces, fearing that the power sector’s circular debt might reach Rs 3 trillion if poor governance is not addressed.
The Ministry of Energy has written a position paper to Prime Minister Shehbaz Sharif and four provinces in support of handing over control of DISCOs, the majority of which are losing money, 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 acknowledgement that theft and line losses alone will add Rs500 billion to the debt shows that the International Monetary Fund’s (IMF) policy of “fiscalizing” power-sector losses by just hiking prices will not stop the flow of circular debt.
In order to close an IMF deal, the government has already agreed to recoup an additional Rs325 billion from electricity consumers through price increases. The parties have also been negotiating the IMF’s demand that a debt servicing tax of Rs3.82 per unit is imposed as a permanent feature to clear the circular debt. The updated Circular Debt Management Plan, which the cabinet has already authorized, shows a reduction in circular debt of only Rs12 billion by lowering line losses at the ten enterprises.
In a position paper given to the four federating units, the Ministry of Energy proposed a six-month schedule for handing over control of these “bleeding elephants,” according to details.
The ministry emphasised that bill recovery had been a continual struggle for a long time, resulting in the building of circular debt. The current legal and administrative structure of power distribution requires provincial governments to have a role.
“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 also added that in the present situation where the country was facing the hard 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”.
In the past, all governments have used DISCOs to pursue their political goals, and they have always resisted their privatisation.
The new plan was created when the Sindh government approached the central government with a request to give over management 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.
But, transferring these companies to provinces will not alleviate the problem unless the uniform rate regime is abandoned, under which an honest customer in Islamabad pays for theft in Sukkur and Karachi.
