There has been a lot going on in Pakistan’s electricity distribution infrastructure. For nearly a year now, there has been talk of different solutions to the problem of how power is supplied all over the country. From privatising distribution companies (DISCOs) to handing control of them over to the armed forces, this has been a major focus of successive governments.
Mostly the concern has been because of mounting circular debt and the part that losses incurred by DISCOs have played in this. A report at the start of the year on the subject of State-Owned-Enterprises (SOEs) exposes the shocking truth that Pakistan’s 31 SOEs across eight sectors have collectively suffered a staggering loss of Rs 730 billion in the fiscal year 2022 alone. The power sector, with losses amounting to Rs 321 billion, stands as the most significant contributor to this financial haemorrhage. The remarkable aspect is that the losses solely originate from one sub-sector — the DISCOs.
The current conversation has come in the wake of a surprising admission of guilt on behalf of the federal government. Admitting the regular overbilling by distribution companies and the power division’s total ignorance about the extent of defective metres, Power Minister Awais Ahmad Khan Leghari on Thursday hinted at reviewing electricity rates for solar, industrial and tribal region consumers to revive plunging electricity demand and counter rising capacity payments.
Of the many schemes that have been suggested to fix the problem, the latest is the suggestion by Prime Minister Shehbaz Sharif that there is a need to seek assistance from private sector experts and globally accepted models to improve the management affairs of the DISCOs. In particular the issue under discussion was power theft and how it can be countered. So how exactly does the prime minister plan on fixing the DISCOs issue, and how did the problem get this big in the first place?
The origin of DISCOs
The connotation of the word DISCO around the globe is vastly different from its designation in Pakistan. In Pakistan, ever since the 1970s, it does not conjure up any notion of leisure or entertainment. The only resemblance it bears to its international equivalent is the monetary agony one experiences when they behold the bill. This is because the word ‘DISCO’ is an acronym for Pakistan’s electricity distribution companies.
These are the companies whose name is emblazoned on your electricity bill at the commencement of every month. These are also the companies that we contact when we are deprived of electricity for interminable hours, when there is a malfunction in the wiring, or when our local transformer is defunct, among other things. At this juncture, the name of the DISCO that will have sprung to your mind will vary depending on your location throughout the expanse of Pakistan. There are presently 12, with the newest one emerging only this year, whilst the oldest one tracing its origins to the early 20th century.
A perennial problem
The Government of Pakistan’s footprint across the power sector comprises distribution companies (DISCOs), generation companies (GENCOs), management companies, and one transmission company. Of these four sub-sectors, only one has incurred losses. Dissecting the Rs 321 billion in losses reveals that all the aforementioned sub-sectors except the DISCOs jointly generated profits to the tune of Rs 55 billion. The DISCOs, in contrast, dragged down the entire sector with their Rs 376 billion in losses.
It’s crucial to note that the DISCOs under scrutiny are those within the Central Power Purchasing Agency-Guarantee (CPPA-G) system. The report excludes K-Electric and predates the establishment of the Hazara Electric Supply Company. As such, it is limited to the ten based in Faisalabad, Hyderabad, Quetta, Lahore, Islamabad, Sukkur, Multan, and the two nestled in Peshawar. We have previously delved into the nature of the DISCOs, their genesis, and the reasons behind their debacle. However, to put it succinctly, these are the companies whose names adorn your electricity bill at the commencement of each month. They are also the ones we reach out to when we find ourselves bereft of electricity for interminable hours, when there’s a hiccup in the wiring, or when our local transformer is out of commission.
The DISCOs are all loss-making entities. Not a single DISCO turned a profit in fiscal year 2022. Is this surprising? Not particularly. The DISCOs have generally been loss-making in the three years preceding fiscal year 2022 as well. The Tribal Electric Supply Company stands out as an exception, having achieved profitability from fiscal years 2019 to 2021. Other anomalies include the Faisalabad and Multan Electric Supply Companies, which achieved profitability in fiscal years 2020 and 2021, and the Gujranwala Electric Supply Company, which registered profits in fiscal years 2019 and 2021. From fiscal year 2019 to 2022, the DISCOs have recorded a cumulative loss of Rs 893 billion, with the accumulated loss for the aforementioned DISCOs standing at a staggering Rs 2.1 trillion at the end of fiscal year 2022.
Why are the DISCOs the way they are?
What lies at the heart of the woeful performance of these DISCOs? The answer, in its most distilled form, is their sheer dysfunctionality. However, let us delve into the more elaborate answer.
“Pakistan embarked on involving the private sector in various segments of the electricity supply chain under the auspices and assistance of USAID and World Bank in the 1980s. Although a similar model has been successful in many countries, our experience with it has been abysmal. Based on my evaluation, it is chiefly because the programme was never executed with resolve, resulting in several crucial deadlines being missed and vital institutions envisaged therein not established in time. In certain cases, we are 40 years too late,” explains Syed Hasnain Haider, a former Chairman of the Faisalabad Electric Supply Company.
“Continued ownership of the various companies by the government has not been advantageous to the sector; in fact, it has proven detrimental. This is evident from the monumental losses, capacity surplus, bottlenecks in transmission lines and distribution systems, scarcity of adequate managerial skills, lack of customer-centric focus, and a poor health and safety record, amongst other issues,” Haider continues.
The National Electric Power Regulatory Authority’s (NEPRA) State of Industry Report for 2022 lends credence to Haider’s assertions and lays bare the grim state of affairs for the DISCOs. In the fiscal year 2022, the average distribution losses for DISCOs stood at 17%, exceeding the permissible limit of 13%. This resulted in a financial repercussion of Rs 113 billion. Furthermore, NEPRA, in its determinations, presumes 100% recoveries by DISCOs against the billed amount to consumers. In reality, the recoveries by DISCOs fall short. In the fiscal year 2022, DISCOs managed to recover a mere 91% against the billed amount, thus incurring a loss of Rs 230 billion.
The losses
The Government of Pakistan’s footprint across the power sector comprises distribution companies (DISCOs), generation companies (GENCOs), management companies, and one transmission company. Of these four sub-sectors, only one has incurred losses. Dissecting the Rs 321 billion in losses reveals that all the aforementioned sub-sectors except the DISCOs jointly generated profits to the tune of Rs 55 billion. The DISCOs, in contrast, dragged down the entire sector with their Rs 376 billion in losses.
It’s crucial to note that the DISCOs under scrutiny are those within the Central Power Purchasing Agency-Guarantee (CPPA-G) system. The report excludes K-Electric and predates the establishment of the Hazara Electric Supply Company. As such, it is limited to the ten based in Faisalabad, Hyderabad, Quetta, Lahore, Islamabad, Sukkur, Multan, and the two nestled in Peshawar. We have previously delved into the nature of the DISCOs, their genesis, and the reasons behind their debacle. However, to put it succinctly, these are the companies whose names adorn your electricity bill at the commencement of each month. They are also the ones we reach out to when we find ourselves bereft of electricity for interminable hours, when there’s a hiccup in the wiring, or when our local transformer is out of commission.
The DISCOs are all loss-making entities. Not a single DISCO turned a profit in fiscal year 2022. Is this surprising? Not particularly. The DISCOs have generally been loss-making in the three years preceding fiscal year 2022 as well. The Tribal Electric Supply Company stands out as an exception, having achieved profitability from fiscal years 2019 to 2021. Other anomalies include the Faisalabad and Multan Electric Supply Companies, which achieved profitability in fiscal years 2020 and 2021, and the Gujranwala Electric Supply Company, which registered profits in fiscal years 2019 and 2021. From fiscal year 2019 to 2022, the DISCOs have recorded a cumulative loss of Rs 893 billion, with the accumulated loss for the aforementioned DISCOs standing at a staggering Rs 2.1 trillion at the end of fiscal year 2022.
The overcharging issue
Back to where we began from. Why have DISCOs been overcharging their customers? In a recent press conference, energy minister Awais Leghari said the distribution companies were losing Rs200bn on account of electricity units they bill but cannot recover, while another Rs360bn worth of units were lost to theft facilitated by “our officers and staff”. “It’s unacceptable,” he said.
So how does it operate? How severe is it? The essence of the matter is that metre readers essentially recorded electricity consumption readings exceeding 30 days and billed them as a 30-day bill. Is this detrimental? It depends.
The DISCOs do overbill due to various reasons — legitimate or otherwise. However, it is usually rectified in the subsequent month. Suppose that you received a bill of 110. If next month your reading is for 200 units, then they will adjust it. Therefore, to assert that the DISCOs have overbilled customers to enrich themselves may be erroneous but surely it is done to cultivate poor results. The problem emerges when a customer’s slab is altered, and they are charged a higher rate than they would have otherwise. People who experienced a change in their slab due to the overbilling have been wronged. There is no question about that.
What does all this imply? Let us do some simple arithmetic. At 290 units, an individual’s bill would have amounted to 10,730. If you were to charge them 20 units extra and they fall into the 300 slab, their bill would have soared to Rs 13,330. Because the slab is different up to 300 units. The rate up to 300 units is Rs 37. When it goes above 300, then all the units have to be charged Rs 43. You have directly inflicted a loss of roughly Rs 4,000 on a consumer. So, will the DISCOs be penalised for this error? Unlikely, the Ministry of Energy is currently conducting its own investigation as to the validity of NEPRA’s report. Is NEPRA’s report correct? Likely, but not because NEPRA is very good but because the DISCOs have done this numerous times before.
Newer recommendations
A few important things have happened in the last week. On the 17th of April, Minister for Power Division, Sardar Awais Ahmad Khan Leghari on Thursday warned all chief executive officers (CEOs) of power distribution companies (DISCOs) to remove ‘Kunda’ before April 23 failing which strict action would be taken against the responsible officials. Addressing a press conference, Leghari said that the government will ensure strict action against elements involved in power theft. He said concrete steps are being taken to overcome inefficiencies in the power sector which are drastically affecting the economy of the country.
“We have prepared a comprehensive roadmap for reforms in the power sector after thoroughly reviewing the loopholes,” said Awais Leghari.
Highlighting the gravity of the situation, Leghari revealed alarming statistics, stating that power distribution companies (DISCOs) were facing an accumulative loss projected to reach Rs 560 billion by June. He attributed a significant portion of this loss, over Rs 300 billion, to power pilferers, stressing the urgent need to curb such illegal practices.
That is where the latest directives come in. Prime Minister Shehbaz Sharif on Thursday directed the authorities to expedite the pace of privatisation and outsourcing of the power distribution companies (Discos) during a high-level meeting regarding the power sector. Presiding over the meeting, the prime minister emphasised the need to seek assistance from private sector experts and globally accepted models to improve the management affairs of the Discos. He also instructed the preparation and presentation of a comprehensive plan in the next meeting to improve the power system in the country.
He said that reforms in the power sector would contribute to reducing the country’s circular debt. He also pledged not to allow electricity theft and other activities to harm the country’s treasury. During the meeting, recommendations and measures to prevent power theft, reorganise the National Transmission and Dispatch Company, and implement new projects for electricity transmission were presented. The meeting was infomed that the Matiari-Rahim Yar Khan transmission line and Ghazi Barotha-Faisalabad line would be constructed to ensure power transmission from the southern part of the country. The meeting was further informed that a comprehensive strategy had been evolved for the reorganisation of NTDC to reform the power transmission system and to minimise the government’s circular debts. The PM urged the completion of all reform initiatives within the stipulated time.
You are 100% right and accurate in this posting.
Good posting in fact.
good information thanks for that