Pakistan's Electricity Sector in Financial Crisis

In spite of the injection of government's subsidies of $7.4 billion since 2008, the power crisis in Pakistan continues to worsen, according to credible reports attributed to Pakistan's Ministry of Finance.

The poster child of the waste, fraud and abuse is the Turkish Karkey rental power ship deal which sinks Rs. 780 million or nearly $9 million per month of public funds for providing very little power because of lack of sufficient fuel supply, according to The News.

There were credible reports in 2009 that the ruling PPP politicians, particularly President Zardari and his inner circle, ignored former Finance Minister Shaukat Tarin's key recommendations to address the acute power shortages in the country. Zardari's insistence on pushing rental power projects, rather than fix the huge circular debt problem in the energy sector first, specially frustrated the nation's former finance chief, and he eventually quit last year.

What is becoming increasingly clear is that the government's corruption and incompetence in the power sector, not just insufficient installed generating capacity blamed on Musharraf, are at the heart of the deteriorating energy situation in Pakistan.

Nine Independent Power Producers (IPPs), with a combined power generation capacity of 1,800MW, have now notified the government and central power purchasing agency (CPPA) that they are invoking sovereign guarantees for the recovery of their dues amounting to Rs. 31 billion.

The much-heralded reforms of the power sector designed to attract more private investment are stalled, and the current financial mess is scaring away potential investors. With circular debt touching Rs. 250 billion, or nearly 40% of the sector's annual revenue as estimated by ADB, new investors are hesitant to risk their capital. As a result, neither the short-term relief from load shedding nor the long term improvements in the energy sector appear to be on the horizon.

In addition to the long delayed structural reforms in the power sector, there is a total lack of will to tackle the widespread problem of power theft and the mounting unpaid electricity bills which account for as much as 40% of the industry revenue. This deprives the crucial sector of the cash it needs to operate as a sustainable and responsive business capable of satisfying its customers' requirements of reliable electricity service. Rather than deal with these underlying issues, the government is choosing to apply the temporary band-aid of uncertain periodic subsidies and repeated rate hikes.

The recent electricity riots and the approaching elections now appear to be having the effect of adding some sense of urgency at the cabinet level to deal with the long festering crisis. The Cabinet Committee on Restructuring (CCoR) on power sector Thursday approved the creation of a holding company to be led by an independent board of directors to finalize the restructuring of four power generation companies (GENCOs).

This holding company will supervise the management of four GENCOs to be managed in the private sector and would try will make sure of fresh investment in such GENCOs to improve power generation from existing 3,500 megawatts (MW) to 4,800 MW in near future to bridge the demand and supply gap, according to a report in Daily Times.

The paper also reported that the PEPCO (Pakistan Electric Power Co) would be dissolved by October 30, 2011 and replaced by CPPA (Central Power Purchasing Agency) with private management would be its successor. He said that role of the ministries in power sector would be minimized and private sector would have complete administrative and financial authority under the reform process to improve the system.

It's absolutely essential that highly competent and fully empowered leadership be brought in urgently to lead the power industry from the dire straits it's in today. The political leadership in Islamabad must understand the following very clearly: Without first repairing the power sector, there can be no hope of fixing the economy and spur growth before the next elections.

Related Links:

Haq's Musings

Pakistan's Worsening Power Crisis

Circular Debt and Load Shedding

Musharraf's Economic Legacy

Pakistan's Tops Jobs Growth in South Asia

World Bank Report on Jobs in South Asia

Pakistan's Twin Energy Crises

Pakistan's Worsening Electricity Crisis

Pakistan's Struggling Economy

Lahore School of Economics Paper on Circular Debt


Riaz Haq said…
From Global Warming Power Foundation:

New Delhi, Oct 12 (IANS) A severe shortage of coal has hit electricity output in the country and led to long and frequent power outages in many states, including the national capital, Maharashtra, Karnataka and Andhra Pradesh.

Most of the plants of the National Thermal Power Corporation (NTPC), the country’s largest power producer, have been generating significantly less power than their installed capacity for the last couple of weeks due to the shortage of coal supply, an official said Wednesday.

Heavy rains in coal producing areas and a two-day strike by workers of Coal India compounded the problems of many power plants across the country, he said.

From India Today:

The power sector is still struggling around the half-way mark of the ambitious target of 78,755 MW fixed for the 11th Five-Year Plan (2007-12), which was set to fulfil the UPA government's dream providing "power for all" by March 2012.

An acute shortage of coal and gas, environmental issues and the lack of funds for investing into new projects have been responsible for holding up the expansion plans in the power sector even as the demand has steadily been growing.

Given the slow pace of implementing new projects, the Planning Commission had in its midterm review slashed the target for the 11th Plan to 62,000 MW. However, the capacity addition the end of March this year was a mere 34,462 MW.

The government has now reduced its power capacity addition target for the 11th Plan to 50,000 MW but even this is unlikely to be met in the remaining months of the current financial year as each of the ultra mega power plants of 4,000 MW and above has run into fuel linkage problems.

The initiative of private sector companies - such as the Reliance Power and the Tatas - buy coalmines in Indonesia and Australia to source coal has also come a cropper as these countries have changed their pricing policy to jack up the price of the fuel. These projects do not appear viable at the moment due to the low tariffs fixed for the electricity they are expected to generate.

The shortage of natural gas is also posing a problem as the output from the giant KG basin eastern offshore gas field, operated by the Reliance Industries, has fallen short of its target. The failure of Coal India Ltd to move out huge stockpiles of coal at the pitheads of its mines is also affecting existing power generation capacity, which is adding to the woes of the consumers.

Land acquisition for the power plants another hurdle as the government has been taking its time for formulating the new policy.

The estimated potential of the hydropower in the country has been put at 1,50,000 MW but only 30,000 MW has been harnessed. Sufficient investments are not being made in this segment despite a liberal policy, which allows the sale at market rates of up to 40 per cent of the total energy produced to the commercial sector.

The sharp rise in the interest rate - which has crossed the 13 per cent-mark - has also forced many power companies to take a relook at their investment plans since this has impacted the profitability of the proposed projects. Economists attribute the hardening of interest rates to the hawkish monetary policy of the RBI, which has raised key interest rates 12 times this year to control inflation.

Read more at:
Riaz Haq said…
Here's an excerpt from The News on mounting debt in the power sector:

ISLAMABAD: With the addition of over Rs1 billion per day to circular debt, the cash flow deficit faced by the power sector has surged to Rs418 billion, betraying the devastatingly poor management of the power sector, a senior official at the Finance Ministry told The News.

Currently, the power sector faces Rs302 billion circular debt, which continues to soar in the wake of mismanagement and inefficiency. The system loses Rs40 billion every year just due to excessive line distribution losses that have surged by 4 percent in recent months, from 21 to 25 percent. Another Rs6-7 billion islost every month because of slow recovery of bills while Rs24 billion goes to IPPs as late payment surcharge.

Previously, line losses stood at 16.5 percent and transmission losses at 3.50 percent (total losses 20 percent) but have now increased to 21 and 4 per cent respectively, pushing a total 25 percent. It is pertinent to mention that one percent loss translates into Rs7.50 billion.

In anther setback, the government continues to pay Rs9.6 billion as GST for electricity bills that it fails to recover. Similarly the government loses Rs2 billion per month in the wake of fuel adjustment loss due to 20 percent losses that have now increased to 25 percent. And because of decreased supply of gas to powerhouses, the government has to sustain the additional burden of Rs6 billion per month.

This means that the government will suffer Rs72 billion additional losses per year if it is unable to supply gas to power plants, given that it will have to use costly furnace oil. Informed sources told The News that the Ministry of Petroleum and Natural Resources has committed to providing 76 million cubic feet gas per day (mmcfd) to powerhouses since the government has decided to give top priority to providing gas to the power sector. “We expect addition of 200 mmcfd gas to the system in December, of which 100 mmcfd each will be allocated to the power and fertiliser sectors,” secretary petroleum and natural resources Mohammad Ijaz Chaudhry told The News. “The decision to accord priority to supplying gas to the power sector was taken during the high level meeting chaired by President Asif Zardari on the energy crisis.”

The official said the Finance Ministry has asked the Ministry of Water and Power to improve its revenues outlook by improving recovery and paying arrears to IPPs and PSO. IPPs’ arrears currently stand at Rs208 billion, while those of PSO are Rs165 billion. However, the receivables of Pakistan Electric Power Company (Pepco) stand at Rs307 billion.

The finance ministry has already told IPPs it will now pay Rs45 billion to them next month. This amount was to be paid before October 15, 2011 but Pepco failed to meet the deadline because of acute financial constraints.

Meanwhile, the government has decided, the official said, to re-introduce uniform electric power tariff across the country, while the subsidy, which power consumers enjoyed, will go to the government. Currently 20 million consumers receive electricity bills under differential power tariff regime and the subsidy, which the government pays directly to the distribution companies, is mostly misused.

“The government has decided no to raise the power tariff by 4 percent as suggested by the Ministry of Water and Power in the summary sent to PM Secretariat until and unless the power tariff rationalisation plan is implemented after its approval by the federal cabinet,” the finance ministry insider said.
Riaz Haq said…
IMF wants power sector reform in Pakistan, reports The Nation:

ISLAMABAD - International Monetary Fund’s Assistant Director for Middle East and Central Asia Adnan Mazari Saturday said that power tariff hike is not the only solution to the power crisis, as Pakistan should introduce managerial and structural changes to power sector.
Addressing a joint news conference here with Finance Minister Dr Abdul Hafeez Shaikh, Adnan Mazari said the IMF has nothing to do with electricity sector, as the Fund only looks for macroeconomic stability of the country. “Pakistan should bring managerial and structural changes to power sector,” he said and added the present system could not work.
He further said Pakistan was facing some short-term issues, and stressed the need for addressing issues on long-term basis which includes creating conducive atmosphere for foreign investment in the country. He said there was a need to focus on fiscal growth, banking sector and energy sector on long-term basis.
Adnan said the Fund had constructive discussions with Pakistan under article IV in Dubai. He further said the current account situation of the country might not remain good during the ongoing fiscal year 2011-2012 as it remained better during the last year due to the global economic situation. He said Pakistan’s economy had faced several challenges like devastating floods, security situation and also global economic situation.
Earlier the Finance Minister described the Saturday’s meeting with IMF as good wherein economic experts, businessmen and representatives of civil society shared their viewpoint regarding economic situation of the country. Pakistan is in consultation process with the IMF which would continue, he added.
He further said the government took several tough decisions including cut in its expenditures and expansion in revenue collection. He observed country’s exports surged to $6 billion during the first four months (July-October) of the current financial year, which is 20 per cent higher than the same period last year. Meanwhile, remittances also surged by 23 per cent in one year and recorded at $4.2 billion during July-September period. Due to the government’s steps, the minister said revenue collection also went up by 28 per cent, as Federal Board of Revenue (FBR) has collected Rs509 billion in the first four months of the current fiscal year. He informed the government is working to increase the foreign investment in the country and job opportunities. The focus is also on improving the efficiency of the public sector departments, he added.
The Finance Minister said the government was committed to economic reforms agenda to ensure that economic stability remains intact.
Riaz Haq said…
Here's a Business Recorder report on Pakistan's growing power requirements:

ISLAMABAD: Former Water and Power Minister Raja Pervez Asharaf on Thursday told the Supreme Court that Pakistan need an addition of 1200 MW every year as the power requirement would enhance to 1,30,000 MW by the year 2030.

Appearing before a two-Judge bench of Chief Justice Iftikhar Muhammad Chaudhry and Justice Khilji Arif Hussain on suo motu case regarding alleged corruption in setting up Rental Power Projects, he defended himself and said that Pakistan's power shortage solution was in hydel power generation and not in thermal which was costly.

"Thermal generation is not our future because we can't afford it for being too expensive," he said, adding "We need to exploit hydel and coal assets.

"The run of the river project can alone have the potential of 7,500 MW while we have 187 million tones of coal reserves in Thar."

He said that unnecessary vilification campaign had led to develop a perception of a scam and swindle that hampered the installation of power plants.

"Even harsher mudslinging and denigration was the order of the day when the government of Benazir Bhutto introduced the Independent Power Producers (IPPs) in 1994," he added.

He said resultantly the big players shied away from investing in Pakistan's power sector when fingers were pointed at them. He also referred to the application of PML-Q legislator and Housing Minister Makhdoom Fasial Saleh Hayat who had levelled charges of corruption and mismanagement in setting up RPPs.

"The concept of RPPs as a stop-gap arrangement was introduced by the previous government of which Faisal Saleh Hayat was the minister and for being the cabinet member was equally responsible if wrong policy was pursued," Raja Ashraf recalled.

Justifying why Makhdoom Hayat was chasing him, Raja Asharaf said, being PPP's secretary general he was very vocal in criticizing Makhdoom Hayat's contesting the elections on his party's ticket and then joining Musharraf's government to become a minister in dictatorial regime.

He also announced that the current power situation in Karachi, the main business hub, would end in few days as the government had developed a mechanism.

Not a single investor or unsuccessful bidder ever raised allegation that he being the minister devoured the money in the grant of license to develop RPPs, he said and brushed aside the impression that he owned a palatial house in London.

The government of Musharraf paid no heed despite repeated warnings of a looming power crisis, he said, resultantly not a single mega watt of electricity was added to the national grid that crippled our industry.

The electricity shortfall which was at 1000 MW in 2005 surged to 5000 MW in 2008 when he assumed the office of the water and power ministry, he said adding he inherited the circular debt of Rs 400 billion.........
Riaz Haq said…
Here's a Business Recorder report (Part 2) on Pakistan's growing power requirements:

........"We had no solution to reduce the shortfall even when some fast track projects in the pipeline got delayed for over two years," he said.

He said "still we exempted our textile industry the main source of $35 billion foreign exchange earning from load shedding even during the difficult days".

The bids were invited for the commissioning of IPPs but no response came because of law and order situation even for the hydel plants.

"We are fast moving towards a different (darker) era," he feared and recalled that today Pepco was facing a shortfall of Rs 170 billion in subsidy for providing uninterrupted power supply to 6.5 million life line consumers when the total number of consumers were over 10 million.

"The World Bank had suggested us to go for long term policies instead of wasting money on subsidies and overcoming load shedding as a short term", he added.

Referring to the question why Pakistan was not developing its own power generation units, he said such investment required Rs 1.2 to 1.4 billion per MW which they could not afford.

He also compared the situation in India which was faced with 40,000 MW of shortfall, while the situation in Bangladesh was worst, Sharjah also experiencing load shedding where consumers in London were paying different tariff for each hour per day.

"Availability and affordability of power is an uphill task though it may not be true for long term projects," he added.

Meanwhile Khawaja Tariq Raheem, representing Pepco, warned that the hydel generation the production of which would dip by 1000 MW in the next decade, would be stalled from the next month because of annual canal closure.

"We would need a prompt production of 500 to 600 MW of electricity which the existing machinery could produce," he informed.
Riaz Haq said…
Here's Express Tribune on govt appointees to reform power sector:

As part of its bid to reform the state-owned power companies, the government has finalised the appointments to a 12-person board of directors of a holding company meant to oversee the transition, and is likely to nominate the former head of the Karachi Electric Supply Company to serve as its chairman.

Sources in the finance ministry told The Express Tribune that the top economic management team had finalised the names and the formal announcement would be made by the water and power ministry soon.

The nominations come on the heels of the government’s decision to merge four state-owned power generation companies at the policy-making level while retaining their operational independence. It has already constituted a holding company to speed up the process of structural reforms.

Sources said that one name currently being considered to head the holding company was Naveed Ismail, who was CEO of KESC until October 2009, when he resigned from the position. He is known as a turnaround specialist, though he was unable to move KESC towards profitability.

All 12 names have been selected based on their experience levels and lack of political affiliation. Among the tasks of the transition team will be to appoint CEOs for the four power generation companies that they will have supervision over.

The four companies have an installed power generation capacity of 4,900 megawatts, though the government is only generating 2,000 megawatts from them due to inefficient fuel consumption. Efficiency levels at the plants range between 24% and 31% (an efficiency level of above 40% is considered acceptable).

In order to compensate for the low efficiency, the government has been raising power tariffs. Late last week, the National Electric Power Regulatory Authority (Nepra) increased tariffs by an average of Rs3.04 per unit on account of rising oil prices. The government is planning a further 12% increase before the end of the fiscal year to eliminate subsidies to the power sector.

Experts have been arguing that the government should accompany tariff increases with structural reforms in the power sector, something the government has struggled to do.

The power sector has exhausted the Rs11 billion injection of money that the government made in order to mitigate the financial crisis in the sector. This has again resulted in increases in the duration of power outages.

During the last cabinet meeting, no major decision on power sector reforms was taken except instituting two-day a week holiday in order to conserve energy. So far, only federal government institutions are observing a two-day weekend while Punjab, where most of the energy is consumed, has opposed the decision.

In the next cabinet meeting, the government is likely to take a decision about tackling the circular debt that according to various estimates ranges between Rs285 billion and Rs300 billion. Currently, the Pakistan Electric Power Company’s payables stand at Rs299 billion against Rs314 billion receivables.

The government has yet to find a solution to the penal charges problem. The independent power producers (IPPs) have worked out Rs24 billion penal charges on account of delay in payments. The IPPs are compelling the government to pay this amount which would ultimately be transferred to the end consumers.
Riaz Haq said…
Here's an APP report on trillion rupees in subsidies to the power sector over four years:

KARACHI, Dec. 3 (APP)- Finance Minister Dr Abdul Hafeez Shaikh said Saturday that the largest burden on the national economy is payment of Rs 1 trillion for the subsidy and losses of state-run power entities in the last four years.“This is a huge money”, he said while speaking at Karachi Press Club (KPC) on national economy. This means that the government is providing electricity to the consumers at a lower price than its cost, he added.The minister said that inefficiency and corporate mis-governance are other reasons for incurring colossal losses.He underlined the need for enhancing the role of private sector in state-run power sector organisations by encouraging public-private partnership to improve their performance and reduce losses.

He said the government has to improve corporate governance, devise an ideal fuel mix, improve tariff structure and speed up future power projects to resolve energy crisis in the country.
He said the tax collection has improved in the country due to government efforts to tax rich people. This will ensure self reliance. In the previous five months of current fiscal year, the revenue collection was higher by 28 percent to record Rs 640 billion compared to same period last year. This is more than the target, he noted.
Dr Hafeez said that the current revenue collection target is Rs 1,952 billion which is higher by 25 percent over last year’s Rs 1,558 billion, up by 17 percent over 2009-10.
He pointed out that the government has paid Rs 50 billion under Benazir Income Support Programme to poor under a cash transfer scheme. This is targeted subsidy programme to ensure that the poorest segment of the society should not be left behind, he added.
He said that the government was trying to focus on the economy for the last five months to ensure economic stability in the country Referring to the flood 2010, the minister said that this catastrophe inflicted a colossal loss of $ 10 billion on the economy and eaten up 2 percent of the GDP.
He said that Pakistan was threats to its security and the government will cut its own budget as well as of other sectors to ensure national security.
Responding to a question about the possible stoppage of US financial support to Pakistan under present circumstances and the preparation of the government, he said that there was no big change in US policies relating to financial support to Pakistan. Pakistan will continue to get $ 500 million every year from USA, he noted.
Finance Minister said that the largest fund providers to Pakistan are IMF, World Bank, Asian Development Bank and Islamic Development Bank and not USA.
Moreover, we are presently focussing on “trade” and not on “aid” and therefore, are exploring markets in the coming years, he added.
Recalling the political achievements of the present government, he said that an additional Rs 800 billion are being provided to the provinces under NFC award.
“Now the provinces are getting 60 percent of the total national resources while the federation is getting only 40 percent from the national kitty. Prior to current NFC Award, federation was getting 54 percent of the national resources while provinces were getting 46 percent, he added.
He said Pakistani Parliament took historical and revolutionary steps reviving 1973 Constitution 18th Amendment, providing a significant autonomy to the provinces and devolving 18 federal ministries including education, health, to the provincial level.....
Riaz Haq said…
The World Bank on Thursday said it would provide Pakistan with $5.5 billion in development aid over the next two years, according to AFP:

“The Bank has responded flexibly in the face of the tremendous challenges Pakistan has gone through over the past year or so,” said its Pakistan country director Rachid Benmessaoud.

“We will continue our strong support to Pakistan, while keeping a keen eye on implementation to ensure that these efforts translate into real results on the ground,” he said.

The bank’s progress report on its Pakistan program said its efforts had been disrupted over the past two years by the devastating floods of 2010-2011, ongoing security problems as well as “slow economic reform”.

“Shifting the focus and resources in response to the floods led to a delay in infrastructure investments,” it said.

It said Pakistan’s economic recovery from the floods and other problems remains slow, with growth of 3.9 percent expected next year.

“A range of governance, corruption and business environment indicators suggest that these areas remain a challenge,” it added.

The funds include $4 billion in development assistance and $1.5 billion from the bank’s International Finance Corporation, which helps private sector firms.

“We are committed to helping Pakistan realize its potential especially in key sectors such as infrastructure, renewable energy and agribusiness,” said IFC Middle East director Mouayed Mahlouf
Riaz Haq said…
Here's a Business Recorder story on energy generation in Pakistan:

Till the introduction of Power Policy 2002, there were 13 IPPs operating in the country with an installed capacity of 4,340 MW. These include Hub Power 1,292 MW, AES Lalpir (now Pakgen Power) 362 MW, AES Pak-Gen (now Pakgen Power) 365 MW, Altern Energy 29 MW, Fauji Kabirwala 157 MW, Gul Ahmed 136 MW, Habibullah Coastal 140 MW, Japan Power 120 MW, Kohinoor Energy 131 MW, Liberty Power 235 MW, Rousch Pakistan 412 MW, Saba Power 114 MW, SEPCO 135 MW, Tapal Energy 126 MW and Uch Power 586 MW. In subsequent years, another 12 IPPs of total installed capacity of 2,468 MW were commissioned, whereas WAPDA-owned KAPCO of 1,638 MW also emerged as an IPP. Power plants commissioned after implementation of the Power Policy 2002 are Attock Gen 165 MW, Atlas Power 225 MW, Engro Energy 227 MW, Foundation Power (Daharki) 110 MW, Halmore Power 225 MW, Hub Power Narowal 225 MW, Liberty Power Tech 202 MW, Nishat Power 202 MW, Nishat Chunian 202 MW, Orient Power 225 MW, Saif Power 225 MW and Sapphire Electric 235 MW. A number of small IPPs, or SPPs, generate electricity with a total capacity of over 700 MW, of which mostly are in-house or captive power plants.

The long list includes ICI Pakistan 26 MW, Sapphire Power 26 MW, Crescent Power 11 MW, Ellicott Spinning 22 MW, Gulistan Power 40 MW, Kohinoor Mills 25 MW, Monno Energy 5 MW, Mahmood Textile 40 MW, DS Power 2 MW, Sitara Energy 78 MW, Bhanero Energy 17 MW, Quetta Textile 31 MW, Ideal Energy 12 MW, Ghazi Power 21 MW, Genertech 28 MW, Nimir Industries 18 MW, Zeeshan Energy 7 MW, Ibrahim Fibers 32 MW, Crescent Bahuman Energy 23 MW and Kohinoor Power 15 MW. In addition, DHA CoGen of 94 MW and Pakistan Steel Mills power plant of 110 MW have in-house power generation facilities. The role of the captive power plants is, nonetheless, significant as these have eased-out the demand on national grid. The SPPs and many captive power units provide their surplus electricity to the network--up to 182 MW to PEPCO-NTDC and 40 MW to the KESC. Textile sector, having an installed captive power plants to achieving dependable and uninterrupted power supply for hi-tech machinery, is the main contributor to NTDC system.

In the power system, a balance between electricity generation and consumption has to be continuously maintained. It was planned to make available a committed net power generation to the level of 23,726 MW (compared to existing 18,580 MW) by June 2012 but the target could not be achieved. A total of 3,400 MW installed generation capacity has been added to the national grid instead since 2008. To overcome power shortages in short term, an investment of RS 32.5 billion was envisaged through the 2011-12 national budget, whereas 14 on-going power projects of cumulative capacity of about 3,000 MW were scheduled for completion during October 2011-June 2012.
Riaz Haq said…
Here's an ET story on decline in circular debt:

The good news is that circular debt in the energy sector is going down. The bad news is that it is doing so for all the wrong reasons.

Circular debt has now become shorthand for the crippling string of financial liabilities that energy companies owe each other because the federal government fails to live up to its promise to pay out energy subsidies that it announces as vote pleasers. This debt has resulted in a massive cash shortage virtually all along the energy chain and significantly reduced the ability of power companies to operate at full capacity, which in turn causes massive power outages throughout the country, particularly during the summer months of peak demand.

But now at last, it appears that the government is paying out what it owes in subsidy payments. Azfar Naseem and Sateesh Balani, research analysts at Elixir Securities, an investment bank, estimate that total circular debt throughout the energy chain has not only stopped growing, but has shrunk by about Rs137 billion during the first six months of the fiscal year ending June 30, 2013.

Part of this reduction has come from higher subsidy payouts to the energy sector from the finance ministry, which rose to Rs160 billion between July 1 and December 20 of this year, about 5% higher than the net payouts throughout the whole previous fiscal year that ended June 30, 2012.

Another significant chunk came when the government effectively forced the state-owned Oil & Gas Development Company (the largest company in Pakistan by market capitalisation) to buy about Rs82 billion in government bonds meant to clear out the outstanding liabilities. The bonds do not mean that the government has paid out its liability: they just mean that they forced OGDC to pay the rest of the energy chain and promised to pay OGDC back.
The government was given this fiscal breathing room by the inflow from the United States in the form of $1.1 billion in outstanding dues on account of the Coalition Support Fund. That entire amount, by some accounts coming out of the finance ministry, was spent on power subsidies. Yet the government may well be running out of accounting tricks to patch up the power sector before the elections.

The reason the government has tried to juggle around its scarce cash reserves is because it wants to make sure that the power companies have enough cash to buy the fuel they need to keep the lights on in the country, at least most of the time, in the run-up to the elections, expected around May 2013.

These techniques appear to be having at least some positive impact: the outstanding receivables at Pakistan State Oil, the largest oil retailer in the country, are down by almost 40% to around Rs120 billion. Receivables at Hub Power Company and Kot Addu Power Company (which supplies politically important regions of southern Punjab) are also down substantially....
Riaz Haq said…
Here's a report on USAID supporting automated meter reading and IT infrastructure for power distribution network in Pakistan:

LIBERTY LAKE, Wash. - Feb. 20, 2013 - Itron, Inc. (NASDAQ: ITRI) announced today that its Automated Meter Reading (AMR) solution has been selected for a United States Agency for International Development (USAID) project in Pakistan.

The objective of the project is to provide services for the USAID Power Distribution Program, a five-year, USAID-financed project designed to facilitate improvements in electric power distribution utilities (DISCOs) across Pakistan. The project works with government-owned power distribution companies and Pakistan's Ministry of Water and Power to improve governance and management systems, increase efficiency of revenue collection, reform the regulatory framework and improve customer service.

Itron, in collaboration with local manufacturer MicroTech Industries, will supply GPRS commercial and industrial meters, RF residential meters, IT infrastructure and data collection software. The AMR solution will help Pakistan power distribution companies improve energy efficiency, manage supply and demand, and reduce losses on the network.

"We look forward to working with Itron as part of this important project which will assist DISCO to increase revenue, reduce theft, increase accuracy and provide improved service to their customers," said Dick Dumford, senior advisor and technical team leader for the Power Distribution Program. "Itron's AMR solution will help DISCO achieve their goal of expanding the supply of electricity and advancing the operational and financial health of the entire power sector in Pakistan."

"Itron is proud to work with International Resources Group to help upgrade the electricity metering system in Pakistan," said Aqeel Jafar Khan, regional marketing director of Itron Energy, Middle East. "Itron's metering expertise and depth of industry knowledge will help power distribution companies in Pakistan manage supply and conserve resources in a region where both are critical."
Riaz Haq said…
Here's a News Tribe story on a computer center at Multan Electric Supply:

Multan: Helping to strengthen Pakistan’s energy sector in ways that increase the supply of electricity to consumers is a top assistance priority for the United States government. That’s why today the United States Agency for International Development (USAID) inaugurated a brand-new planning and engineering computer center at the Multan Electric Supply Company. This center is equipped with the latest generation of sophisticated computers and software that engineers at the Multan Electric Supply Company will use to help ensure a more reliable supply of power to consumers.

At the event, USAID Mission Director Jock Conly remarked, “Distribution companies don’t have a system to assess energy losses. That makes it difficult to come up with a solution to the energy crisis. The USAID Power Distribution Program is helping the Multan Electric Supply Company by establishing a planning and engineering computer center using the same type of software the United States uses to manage its energy to perform much-needed assessments and implement plans for loss reduction.”

The Multan Electric Supply Company power distribution system supports approximately 120 million Pakistanis. Distribution Companies (DISCOs) like Multan Electric Supply Company play a key role in ensuring a smooth and uninterrupted delivery of power to residential, commercial, agricultural and industrial customers. Establishment of the new USAID-funded computer center will allow the Multan Electric Supply Company to segregate technical losses so they can plan and implement plans for loss reduction. These plans will enable the energy sector to save megawatts and increase revenues, which are both key to solving the issue of circular debt. USAID has established similar computer centers in 7 other DISCOs throughout the country. Through the Power Distribution Project, USAID is also introducing new technologies like smart meters to improve meter reading and thus improving the accuracy of billing to Pakistanis.

In addition to these activities, the United States is renovating thermal plants at Jamshoro, Guddu, and Muzaffagarh, which have already added 650 megawatts to the national grid since September 2011. The U.S. government is also co-financing the completion of the Gomal Zam and Satpara dams which will add another 35 megawatts and irrigate more than 200,000 acres. Finally, we are helping to replace thousands of highly inefficient agricultural and municipal water pumps throughout the country to save additional megawatts. These and other major U.S. energy projects will add 900 megawatts to the national grid by the end of this year – enough power to supply electricity to estimated two million households.
Riaz Haq said…
AGP finds Rs 980 bn (about US$ 9 billion) irregularities in #Pakistan power sector

The auditor general of Pakistan (AGP) has found embezzlement, misappropriation and irregularities of around Rs980 billion in the accounts of Water and Power Development Authority (Wapda) and other power companies working under the Ministry of Water and Power in the audit year 2013-14 and has asked the president to order investigations into specific cases.

The amount is equal to nearly one-fourth of the Rs4 trillion federal budget for fiscal year 2015-16 and can explain why the government has to inject huge subsidies out of taxpayers’ money every year to clear the circular debt that keep emerging again and again. Over the past five years, the federal government is estimated to have injected more than Rs2 trillion into the power sector, besides increasing consumer tariff by about 200 per cent.

On top of that, the AGP has also made observations over Rs4.2 trillion in an unsettled audit backlog from the past few years.

The audit pertained to Rs414 billion of expenditure and Rs898 billion of revenue for fiscal year 2012-13.

In its report to the president of Pakistan — as mandated under Article 171 of the Constitution — the AGP has put together seven broad categories of findings from an audit of the accounts of Wapda, four generation companies (Gencos), 10 distribution companies (Discos) and the National Transmission and Despatch Company (NTDC).

Wapda’s Directorate General of Audit — a specialised wing empowered to look after power sector accounts — said it had ignored the instances of misappropriation, fraud and other irregularities amounting to less than Rs1 million. In FY2012-13, the directorate said, an audit found 184 cases of irregular expenditures or unjustified payments and rule violations amounting to Rs368.65 billion.

Another 88 cases, worth Rs572.63 billion, pertained to non-recoveries and overpayments; 18 cases to accidents and negligence that cost around Rs19.5 billion; Rs5.8 billion was linked to cases where there were weaknesses in internal control systems; and transactions of around Rs11.8 billion were called into question over non-production of record. Another nine cases, worth around Rs350 million, were related to embezzlement of public money through theft and misuse of funds.

However, at the instance of audit, only Rs31.9 billion could be recovered and the AGP pointed out that it was beyond their capacity to carry out a “100 per cent” audit of these entities.

But the AGP pointed out that the internal control mechanisms in Wapda and its corporate entities did carry out complete audits, which also included consumer service offices, and also carried out physical examinations.

The AGP said that the recurrence of frequent irregularities “cast a shadow of doubt on the effectiveness of this internal control system”. The internal controls, it said, were deteriorating gradually as there had been an increase in cases of unauthorised extension of load, non-implementation of equipment removal orders, theft of material and electricity and violation of procurement rules as well as the Nepra Act.

The audit revealed that power distribution companies could not collect Rs401 billion from various defaulters in FY2012-13, while the procurement of material and consultancy services, provision of PC-1s and contracts involved the violation of procurement rules

“There was poor monitoring of revenue collection, embezzlement of funds, misappropriation and theft of material, misuse of public funds, incorrect billing, non-implementation of commercial procedure and non-adherence to provisions of power policy,” the AGP said.

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