In order to control the losses of power distribution companies, the government has taken the decision to recover the entire cost of power theft amounting to Rs82 billion every year by punishing honest consumers who pay their bills regularly, from the onset of the FY 2017-18.
The timing of this decision seems odd considering that power consumers are already bearing 8 to 12 hours of load-shedding daily with the rise in summer temperatures. This decision was taken recently at a high-level meeting chaired by Prime Minister Nawaz Sharif.
The incumbent government had decided against providing full relief of the slump in international crude oil prices to power consumers by slapping financial and tariff rationalisation surcharges to the tune of over Rs100 billion per year. Besides these, the consumers are also paying a debt surcharge to help retire the debt of inefficient power distribution companies.
During the meeting, the prime minister was informed that the National Electric Power Regulatory Authority (Nepra) estimated the tariff for state-owned power distribution companies based on two key assumptions – 100% bill recovery and average line losses of 15.3%, said a senior government official.
Nevertheless, these assumptions aren’t representative of the ground reality. The water and power secretary disclosed that average bill recoveries over the past years hovered around 88% to 90% and line losses actually stood at 19pc. Due to this differential between Nepra’s estimates and actual recoveries and line losses, the circular debt escalated from Rs320 billion in October 2014 to Rs374 billion in December 2016, an official stated.
The years 2015 and 2016 saw an improved performance from the distribution companies with high recoveries at over 93pc and line losses lowering to 16.30pc, with support from cheap oil prices which also limited the expansion of circular debt. If these improvements are not taken into context, the debt would have reached Rs684 billion, the secretary said.
The secretary also recommended the prime minister to issue policy directives to the power sector regulator, Nepra, to allow quarterly adjustment of the actual line losses and bill recoveries in the tariff, which would allow to bring down the subsidy bill by Rs84 billion. He also informed the meeting participants that the circular debt had reached Rs329 billion by April 5, 2017.
To bring the circular debt under control, the secretary suggested the need for tackling the structural issues with Nepra in regards to tariff determination on the assumption of 100pc recoveries and average 15.3pc line losses.
It was decided that the Ministry of Water and Power would approach Nepra for seeking quarterly adjustment of the actual line losses and bill recoveries in the tariff.
