Power Emergency in Pakistan

The Natio­nal Electric Power Regula­tory Authority (Nepra) has asked the prime minister to declare a national power emergency and take drastic steps for scaling down about Rs1.93 trillion circular debt which, according to the regulator, is significantly higher than reported by the power division. The power regulator has advised the government to declare a power emergency to take a series of steps on urgent basis. Under this emergency, Nepra has suggested a ban on labour unions for ensuring and enhancing recoveries for and from distribution companies and proposed that there should be no imported fuel-based power projects.

Nepra advised that some low hanging fruits should be plucked immediately by loan restructuring of Rs53bn per year for eight thermal power plants, including three LNG-based, three coal- based and two nuclear power plants.

The power bureaucracy has long been notorious for its total lack of transparency, especially with regard to its reporting of financial data. When pressured by its political bosses to improve its performance, it routinely resorts to managing the numbers rather than the outcomes on the ground.

It might sound like alarmist talk when the power sector regulator advises the prime minister to declare a ‘power emergency’ in the country.

Power bureaucracy showed an improvement in performance without actually having achieved anything. Given the discrepancy between the figures concerning the circular debt presented by the power bureaucracy and the regulator, perhaps the call should be taken seriously.

For the period ending Dec 31, to take one example, there is a Rs74bn discrepancy in the amount of the circular debt that was reported by the power division and Nepra. The nature of the power system is such that there is no way to reconcile the two different numbers, other than sending both the parties into a room with a neutral arbiter of some sort, who is able to emerge with the correct amount.

The regulator also reported that monthly circular debt touched the lowest ebb of Rs3.25bn in June 2016 and had since been increasing. The average build-up amounted to Rs10.8bn by June 2017, followed by Rs25.58bn by June 2018 and then Rs41bn a month by June 2019. It slightly reduced to Rs39.67bn by Dec 2019 and went up again to Rs42.4bn in Jan 2020.

The regulator, Nepra, has now reportedly told Prime Minister Imran Khan directly, and in the presence of high officials from the power bureaucracy, that the circular debt figures being reported by the latter are not correct; it has presented its own figures as a counterpoint. Given this lack of transparency, the continuing rise of the circular debt indeed looks like an emergency.

The government prefers to blame this situation on the rising capacity payments, given the recent additions to power-generation capacity under the previous government. There was always a concern over the rising capacity charges that have come with the new additions under the last government. Warnings were even sounded from within at that time, but they were quickly brushed aside as the power projects continued.

Nevertheless, with such opacity in the figures, it is difficult to accept this claim at face value. It could just as easily be the result of poor billing and recoveries. Perhaps while they are busy reconciling their numbers on the circular debt, those in charge can also produce an independent analysis of what is driving the current increase.

Nepra has also suggested that industry should be asked to operate at night to reduce peak and special economic zones should be developed on priority to increase power demand. It is becoming imperative to get to the bottom of what has gone wrong, because the circular debt is now touching Rs2tr. This climb cannot be sustained forever.

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