Reducing power sector circular debt hinges on curbing T&D losses

ISLAMABAD   -  Pakistan’s energy sector circu­lar debt is rising steeply, caus­ing deep fiscal imbalances, and to effectively reduce it, the primary focus should be on re­ducing transmission and dis­tribution (T&D) losses. Tauseef Farooqi, former chairman of the National Electric Power Regu­latory Authority (Nepra), sug­gested a few policy options for curbing T&D losses.

He said that the substantial transmission and distribution losses incurred by the distribu­tion companies (Discos) contrib­uted significantly to the escalating circular debt. “In the presence of huge T&D losses, the goal of bring­ing the circular debt down would remain a distant dream.” He said that a shift towards a competitive electricity market was essential for meaningful change. “Introduc­ing competition is crucial to instil efficiency in the system, similar to the successful models established in our telecommunications and banking sectors,” Farooqi assert­ed while talking to WealthPK. Keeping in view the challenge of circular debt in the power sec­tor, he suggests that Nepra make a transition from the existing state-led, single-buyer model to a competitive multiplayer mar­ket that aims to eliminate the monopoly of Discos within their respective territories.

As the Ministry of Power re­ported, T&D losses in Pakistan’s power sector increased to Rs520.3 billion in FY23, mark­ing the highest-ever deficit within a single financial year.

The Islamabad Electric Pow­er Company recorded losses at a rate of 8.18%, resulting in a financial impact of Rs21.9 bil­lion. Gujranwala Electric Power Company experienced losses at a rate of 9.07 %, amounting to Rs24.7 billion. Lahore Electric Power Supply Company report­ed losses at a rate of 11.52%, equivalent to Rs72.7 billion.

At the start of FY23, the cir­cular debt rose to Rs2.309 tril­lion, up from Rs2.252 trillion in FY22. In FY23, the recovery rate was 92.4%, leading to an additional Rs236 billion being accrued in the circular debt. Mubashir Ahmad, a member of the Board of Directors of K-Elec­tric, said that the inefficiency of the distribution companies was the root cause of transmission and distribution losses. “At the heart of this narrative are inef­ficient, financially struggling distribution companies, con­tributing to the accumulation of a substantial power sector debt of almost Rs3 trillion over the past decade despite frequent tariff hikes,” he pointed out.

However, he expressed op­timism about the positive out­come of the reforms that the government was undertaking in the power sector. Ahmed agreed with Farooqi’s sugges­tion of privatising the power sector entities. “The establish­ment of a competitive market following privatisation will provide consumers with op­tions and flexibility, attract both local and foreign invest­ments into the power industry, enhance distribution networks, introduce new technologies, and elevate efficiency and ser­vice quality.” Among the recent initiatives taken in the power sector, the noteworthy endeav­ours include the Competitive Trading Bilateral Contract Mar­ket (CTBCM), the Indicative Generation Capacity Expansion Plan (IGCEP) and the Transmis­sion System Expansion Plan (TSEP). These initiatives are poised to reduce the power sec­tor losses in the future.

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