LACK OF GOOD GOVERNANCE FOSTERING POWER CRISIS

AMANULLAH BASHAR
(feedback@pgeconomist.com)
Aug 2 - 8, 20
10

The concept of good governance is missing from socioeconomic and even political fronts, which is evident from ever increasing street crime and violence, mounting inflation which has alarmingly eroded the rupee value adding to the economic and financial woes of the people in general and is feared to worsen ahead of fast approaching holy month of Ramadan.

It will not be out of place to mention that heightening of political noise on the issue of fake degrees of the law makers in the house of legislatures speaks more loudly about the missing of the good governance which is soul of the democracy.

The persisting power crisis on the other hand has made a serious dent to the economy which is no doubt a clear indication that the concept of good governance is found only on papers in our society.

The persisting energy crisis is weighing heavily on socioeconomic development of the country in the wake of ever-increasing power tariffs. The power distribution companies resort to load shedding endlessly. It may be noted that power theft at a massive scale is one of the major issues in the power sector.

It is the power theft generally called "Transmission and Distribution Losses" which results in poor bill collection by power distribution companies. For example Wapda, a state-owned utility, is unable to meet more than 50 per cent of IPP dues in cash terms, said informed sources.

Consequently, Wapda and IPPs have to pay interest on the unpaid bills to the IPPs and the fuel supply companies. The KESC owes over Rs20 billion to fuel supplying gas company in Karachi.

The increase in interest rate by the State bank will add to the burden of interest paid by the defaulter companies. Amazingly, on one hand IMF says that interest rate should not be lowered unless the inflation is contained while on the other hand it has mandated the government to remove all subsidies on electricity which are resulting in increase in power tariff. Every one knows that the high rate of electricity and POL products have a multiplier effect on general prices triggering the inflationary pressures to the new height to add to the sufferings of the poverty ridden people of this country.

The trade and industry however has strongly opposed the increase in interest rate by the State Bank. The trade and industry has rejected the half per cent increase in interest rate declaring it anti-industry and anti-economy move by the central bank.

Prominent business leaders were of the view that country's economy was already facing extreme hardships due to which hundreds of industries have closed down and now the State Bank of Pakistan has given another blow to the ailing industry by raising half per cent bank rate. The increase in interest rate would bring the remaining industries on the verge of closure.

Actually, the government regulators are compromising the economy with its hawkish decision. The industrialists were repeatedly demanding to bring down the interest rate to single digit so that ailing industry would be able to recover from depression, however the adverse decision would only give severe damage to the economy. The financial experts had already warned the SBP about the negative aspects of raising bank rate but this move shows that decisions are being taken somewhere else.

Coming back to the power sector, it is said that the transmission and distribution losses primarily attributed to the power theft at a massive scale range between 35 to 38 per cent both in Wapda and KESC system.

The unchecked line losses are adversely affecting the cash flow of the utilities but also adding to the burden of the genuine consumers due to rising price of electricity. If the power theft is brought down to international average i.e. 8-12 per cent this would provide a relief to the power distributing companies as well as to the genuine consumers with the reduction in power tariff.

It may be noted that Wapda's power cost of its own generation and purchase from IPPs remains persistently higher than retail power tariffs due to T&D losses which are affecting financial health of the utility as well as torturing the consumers with ever increasing power tariffs.

Sources said that currently the cost of power generation is higher than the tariff mainly because of unaccounted for electricity in the power distribution system of the utilities. Though the major reason for power theft is high tariff rates on one hand yet it cannot be materialised without connivance of the staff of the utilities, sources said. Sources further said that the numbers of circular debt have swelled which might affect the power generating will of the IPPs due to financial crunch.

It may be mentioned that Wapda, the sole buyer of power generated by Independent Power Producers (IPPs), has no option but to make stopgap arrangements and partial payments. The situation calls for concrete plan to address the outstanding stock of inter-corporate debts.

It may be recalled that after gradual improvement in energy sector liquidity and IPPs financial health in the first half of financial year 2010 the inter-corporate debt numbers have once again swelled in the second half of the financial year 2010 and it seems that there seems low likelihood of a near-term solution of the inter-corporate debt, primarily due to financial constraints.

It may be mentioned that improvement in inter-corporate debt numbers in the early part of the previous fiscal year was led by lower furnace oil prices and issuance of two power bonds in March 2009 and Sep 2009 however progress to get rid of the nuisance of circular debt has since then slowed down and generation cost is once again showing rising trend.