Major restructuring package for power sector planned

ISLAMABAD: The government is planning to announce a major restructuring package for the power sector envisaging a freeze on average consumer tariff coupled with incentive-based lower rates for industry and small and medium enterprises (SMEs), transfer of distribution companies (Discos) to the provinces and transfer of K-Electric’s majority shares to Shanghai Electric under the China-Pakistan Economic Corridor (CPEC).

The recently inducted Special Adviser to the Prime Minister (SAPM) on Power Tabish Gauhar told Dawn that he was also pushing for putting to an end to the uniform power tariff across the country. He said the staff of the International Monetary Fund (IMF) during recent engagements with the PM’s adviser on finance and State Bank of Pakistan governor had reportedly demanded an increase in power rates but that is where Prime Minister Imran Khan would take up the matter at the highest level with a strong commitment to achieving specific reform goals within a given time frame.

His understanding was that the IMF leadership would have the confidence that commitments on deliverables at the highest level in Pakistan would be adhered to with full force unlike ministerial and staff-level commitments in the past that falter down the line under separate compulsions of the political leadership.

Mr Gauhar said the power division had prepared the new tariff model, shared it with the prime minister and is finalising it. The different tariff rates — higher at peak times and lower at off-peak ones — would be done away with and consumers would be offered to enjoy lower flat rates round the clock to encourage maximum utilisation of surplus power capacity.

Transfer of Discos to provinces and K-Electric’s majority shares to Shanghai Electric under CPEC envisaged

He said the government had been providing lower power rates to big industry in recent years but the SME sector, which actually had the potential for job creation and could contribute substantially to GDP, remained overlooked. The peak rates would be done away with for SMEs and even residential consumers. “There is no justification for peak rate of Rs21 per unit or above when the country has surplus capacity,” he said.

This would address the challenge of capacity payments, estimated for the current fiscal year to be more than Rs900 billion and projected to touch Rs1.6 trillion next year, he explained. He said the average tariff had also gone beyond people’s paying capacity and was getting counter-productive without addressing the root causes of circular debt.

Mr Gauhar, who led K-Electric for more than six years until 2015, said the piecemeal reforms were not going to change the power sector and drastic steps were needed. Decentralisation was the solution to Discos’ problem instead of centralisation of power. Therefore, he said, he was pushing for abolition of the Pakistan Electric Power Company (Pepco) with which the power division was until recently pushing Discos to sign management contracts.

He said the empowered boards of directors of Discos should take commercial decisions and this would be done at the earliest. For this, he said, Discos would be handed over to the provinces along with doing away with the uniform tariff mechanism. After the 18th Amendment, he added, there was no justification for a uniform tariff that was creating about Rs150bn annual circular debt.

The SAPM said there could be some resistance from Sindh and difficult in Balochistan because of Quetta Electric Supply Company’s huge losses, but an easy way forward would be to start with transfer of 100 per cent equity of Punjab-based Discos for Re1 to the Punjab government where the PTI was in power.

After devolution, “plugging the leakages in the ‘last mile’ distribution network by reducing theft, improving collections ought to be the primary responsibility of the local provincial government”. Where required, the provincial government should provide the subsidy, not the federal government.

Mr Gauhar said he had also proposed to the prime minister that K-Electric’s transfer to Shanghai Electric, delayed for four years, should finally be consummated under the CPEC umbrella in an unbundled basis i.e. divided into generation, distribution and transmission to provide a comfort to the Chinese firm that the governments of China and Pakistan stood by the deal.

The matters relating to receivables and payables between the government entities and K-Electric have to be settled through a court or arbitration in a fair manner. He said the mark-up being claimed by Sui Sothern Gas Company on K-Electric dues was un-Islamic because it was in compound form and more than 60pc of the total amount.

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