MUSHTAQ GHUMMAN

ISLAMABAD: The Auditor General of Pakistan (AGP) has unearthed burdening of electricity consumers by National Electric Power Regulatory Authority (Nepra) by including Independent Power Producers (IPPs) capital cost of $ 5.481 billion in tariff as a special favour to investors.

This was unveiled in a report titled special study on energy crisis – reasons and solutions. The report has been made part of audit report 2014-15.

According to the audit, 28 IPPs were inducted in the system from 1994. Under the Power Policies of 1994 and 2002 private power producers had to invest only 20 to 30 per cent of the capital in the business and the rest of the 70-80 per cent was to be financed through the local and foreign banks.

“Review of tariff determinations announced by Nepra revealed that the capital cost of power plants of IPPs was included in the tariff and was being recovered from the consumers, despite the fact that the power plants would be the property of the investors. This has resulted in undue favour to the investors and burden on consumers,” the special report added.

The payment of 80 per cent of capital cost estimated at $ 5.481 billion along with the interest cost of these plants was being included in the tariff charged from the customers. Inclusion of principal amount of debt in per unit cost of electricity was unjustified. Audit was of the view that only the interest can be charged because it was the cost of borrowing. Ultimately, a consumer was paying for the capital amount of the IPPs as included in the tariff which was a clear burden on the shoulders of the consumers and on the other hand consumers were not getting any benefit of such payments and upon the complete payment of the loan, all assets will be the property of IPPs. In addition all the major and minor overhauling costs of the plants is being borne by the end consumers.

Even if the plants were to be handed over to the power producer, consumers should have been given credit of the payment which they were making for the capital expenditure on behalf of the IPPs. While determining the tariff of such IPPs, Nepra did not consider the fact that the payment of capital cost by the consumers was not justified and in any case consumer could not be held responsible for the payment of capital expenditure incurred by the IPPs for building/ acquiring their assets.

“All the IPPs inducted in the system were on 80 per cent debt basis which ultimately was being recovered from the end consumers. This implies that an amount of $ 5.481 billion was imposed on the shoulders of public for supply electricity at very high rates,” AGP continued.

The relief against capital contribution by the power consumers needs to be incorporated in the tariff determination procedure of Nepra.

The audit has recommended the energy audit of all power generating companies (IPPs and Gencos), NTDC and Discos should be carried out to avoid wastage of energy and to promote energy conservation.

While taking stock of losses, the Audit calculated losses of Rs 16.522 billion in Discos due to inefficiencies in distribution system.

Distribution losses of Discos remained at 16.88 per cent, 16.89 per cent and 17.01 per cent during 2012-13, 2011-12 and 2010-11. As compared to other Asian countries, these losses were extremely high. In China, Sri Lanka and Bangladesh, T&D losses were only 6 per cent, 14 per and 2 per cent respectively whereas for Organisation of Economic Co-operation and Development (OECD) member countries, T&D losses were just 7 per cent.

Punjab had the lowest distribution losses of 11.39 per cent and Balochistan suffered 18 per cent losses, Sind and KPK suffered highest losses of 30 per cent.

Huge amount of Rs 20.288 billion was written off against Rs 26.496 consumers during financial year 2012-13. Audit argued that the Discos do not have powers to write off such a heavy receivables/ debts without proper and valid justification.

Analysis showed that major amounts were written off by Sepco, Hesco and Qesco amounting to Rs 9.809 billion, Rs 8.450 billion and Rs 1.975 billion respectively.

Non-recovery of such a huge amount of receivables from consumers and simply writing off the amount was in contravention with the relevant rules and regulations framed for this purpose.

Entities responsible for development of indigenous resources i.e. Wapda, Pepco, PPIB, AEDB and PRES) did not take any interest in producing electricity from indigenous resources - renewable and non-renewable. There was 58,000 MW of hydel potential (renewable resource), 100,000 MW of coal (non-renewable resource) and 132,000 of wind ( renewable resource) and 200-250 watt per square meter per day of solar power) renewable resource) available in the country which was totally ignored .

The government shall undertake concrete measures to eliminate the bottlenecks including financial constraints to enhance power generation. In addition, instead of establishing number of organisations (i.e. PPIB, AEDB, PRES, REAP and PCRET) with similar objectives, the planning and development may be carried by a single organisation which will not only lessen extra burden on national exchequer but also enable efficient development of renewable resources.

Targets set for Nepra for transmission and distribution losses should be minimized by controlling the theft of electricity, proper maintenance of transmission and despatch system and monitoring of Nepra targets at feeder level/ subdivision level. Over billing should be avoided to control the distribution loses. Power sector companies incurred average line losses of 20 per cent during the financial year 2012-13, 2011-12 and 2010-11 against an average target of 15 per cent set by Nepra. Failure to meet targets resulted in losses of Rs 57 billion during the last three years.

Audit General also recommended that National Energy Conservation Authority should be established to devise and enforce energy conservation measures for all sectors of economy.

The government should improve existing system of generation and transmission of electricity by taking all necessary steps including clearing of circular debt, etc. so that electricity can be generated to the maximum capacity.

According to the audit, the issue of circular debt remained the biggest constraints in utilization of available capacity of electricity for more than the last five years. The circular debt increased from Rs 149 billion as on June 2009 to Rs 530 billion as on June 28, 2013. GoP paid Rs 480 billion till July 31, 2013 to reduce the circular debt to Rs 90.4 billion but the real issues were not addressed to control the growth and future accumulation.

The major reasons for continued increase in circular debt are as follows: (i) nonpayment of cost of electricity by Discos/ KE to CPPA/NTDC which accumulated to Rs 1205 billion as on June 30, 2013 ; and (ii) poor recovery of electricity bills by Discos particularly Hesco, Qesco, Pesco and Sepco.