POWER DISTRIBUTION COMPANIES & CIRCULAR DEBT

NOREEN AMJAD, MUHAMMAD REHAN
& MUHAMMAD FARHAN
(feedback@pgeconomist.com)

Dec 17 - 23, 2012

At the time of independence, Pakistan inherited 60MW of power generation capability for a population of 31.5 million. Twelve years later, Water and Power Development Authority (WAPDA) was created in 1959 for the purpose of coordinating and giving a unified direction to the development of schemes in Water and Power Sectors, which were previously being dealt by the respective Electricity and Irrigation Department of the Provinces. By that time country had entered the phase of development, which required a dependable and solid infrastructure, electricity being its most significant part. The task of power development was undertaken by WAPDA for executing a number of hydel and thermal generation projects, a matching transmission network and a distribution system, which could sustain the load of rapidly increasing demand of electricity.

After first five years of its operation by 1964-65, the electricity generation capability rose to 636 MW. The rapid progress witnessed a new life to the social, technical and economic structures of the country, mechanized agriculture started, industrialization picked up and general living standards improved. The task of accelerating the pace of power development picked up speed and by 1970, the generating capability rose to 1331 MW with installation of a number of thermal and hydel power units. In the year 1980 the system capacity touched 3000 MW which rapidly rose to over 7000 MW in 1990-91. In 1993-94 government decided to call Independent Power Producers (IPPs) for installing new generation facilities. First Power Policy was launched in 1994 and second in 2002.

In October 2007, WAPDA has been bifurcated into two distinct entities i.e. WAPDA and Pakistan Electric Power Company (PEPCO). WAPDA is responsible for water and hydropower development whereas PEPCO is vested with the responsibility of thermal power generation, transmission, distribution and billing. PEPCO has been fully empowered and is responsible for the management of all the affairs of corporatized nine Distribution Companies (DISCOs), three Generation Companies (GENCOs) and a National Transmission Dispatch Company (NTDC). These companies are working under independent Board of Directors.

Following are the nine Distribution companies managed by the PEPCO while KESC was privatized in 2005-06.

* PESCO - Peshawar Electric Supply Company
* IESCO - Islamabad Electric Supply Company
* GEPCO - Gujranwala Electric Power Company
* FESCO - Faisalabad Electric Supply Company
* LESCO - Lahore Electric Supply Company
* MEPCO - Multan Electric Power Company
* HESCO - Hyderabad Electric Supply Company
*
QESCO - Quetta Electric Supply Company
* SEPCO - Sukkur Electric Power Company
* KESCL - Karachi Electric Supply Company Limited

During the 2011, these distribution companies recorded a loss of 21,379 GWH or 22% of electricity they purchased. Production cost of one unit on furnace oil is 17~18 rupees. So the estimated annual loss would be 363 Billion rupees. This shows that these Distribution companies are generating a daily loss of 1 billion rupees. Following is the summary of losses incurred by these companies:

UNIT

ELECTRICITY PURCHASED (GWH)

ELECTRICITY SOLD (GWH)

LOSSES GWH

LOSSES %

PESCO

13,396

8,712

4,684

35

HESCO

8,784

5,814

2,970

34

QESCO

5,084

4,048

1,036

20

MEPCO

12,471

10,189

2,282

18

LESCO

16,995

14,741

2,254

13

GEPCO

7,314

6,439

875

12

FESCO

9,685

8,596

1,089

11

IESCO

8,502

7,674

828

10

KESC 15,433 10,072 5,361 35

The recovery from the units sold by these companies is also very low. Following is the table of recovery by these distribution companies:

UNIT RECOVERY RATIO (%)
PESCO 78.4
HESCO 59.1
QESCO 40.99
MEPCO 97.97
LESCO 98.1
GEPCO 98.84
FESCO 99.76
IESCO 93.38
KESC 85.56

The above statistics are very surprising. First these companies are not able to sell all the units they purchase from Power Stations to the consumers. About 22% of the electricity has been theft; that are declared as distribution losses. It is very clear that prevailing circular debt situation in the country is mainly due to the losses of WAPDA and it is our responsibility to point out the electricity thieves between us. Otherwise we will have to pay the bill of electricity theft by them.

Following are some quick and effective solutions to reduce circular debt:

* Reduce Electricity theft as electricity of 1 Billion is being theft daily in Pakistan

* Use the subsidy intelligently for permanent solutions (infrastructure projects) rather than operating expense (Fuel Purchase) to:

* Convert existing power plants from oil firing to coal firing

* Installing new power plants of wind, solar and hydel

* Starting Performance improvement project at existing plants to reduce production cost

* Provide gas to power plants on priority rather than supply to CNG stations

* Make insulating materials tax free; so that people can use these in their homes to reduce electricity need

* Install small meters of 500 watt (0.5 kW) capacity with existing meters. These small capacity meters would be declared load shedding free. If people manage their loads with 600 watt UPS than they can also manage their needs with these small meters of 500 watts during 6~8 hrs of load shedding on main meters. The energy saving in this regard is of 30~40 % as the UPS that gives 600 watt consumes 1,000 watt from WAPDA / KESC system. If government themselves provide less electricity instead of load shedding; there would be the saving of UPS losses.

Hopefully by taking these small measures; circular debt would be reduced and our country will prosper INSHA ALLAH.