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High tariffs unlikely to control debt

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ISLAMABAD:

Circular debt has haunted all governments and so has the current Pakistani administration Tehreek-e-Insaf (PTI).

It has worked to control losses and improve invoice collections. Yet the debt has continued to rise and now exceeds Rs2 trillion.

The faulty agreements with independent power producers (IPPs) are primarily responsible for the rise in electricity prices. Capacity payments to power producers are estimated to have reached Rs 900 billion and will rise to Rs 1.6 trillion in the coming years.

A close aide to Prime Minister Imran Khan said increasing electricity tariffs is not a solution and that the best remedy may be different measures in the context of electricity sector reforms.

“We are working on a revised deal with the PPIs to reduce tariffs and convert MoUs into legally binding agreements,” Tabish Gauhar, Special Assistant to the Prime Minister for Energy, said in an interview with The Express Tribune.

As part of the revised deal, PPIs agreed to reduce the return on equity, decoupling dollar indexation, recovering some of the excess income and sharing it with consumers.

The government will also seek to reduce the term of debt from 10 years to 20 years for more recent projects commissioned or under construction.

Gauhar pointed out that there were several power plants that invested in rupees but their returns were tied to the US dollar and the anomaly had been corrected. However, he said power plants that borrow from foreign banks would be allowed to continue with dollar indexing.

Responding to a question on how foreign investors would react to renegotiating agreements with PPIs, the Prime Minister’s assistant said: “It is not without precedent and many countries are taking such initiatives if their economies fail. are not viable, which is clearly the case with the might of Pakistan. sector.”

It has long been argued that the Electricity Distribution Companies (DISCO) should be handed over to the provinces for better management. At the same time, it was argued that the provinces do not have the capacity to manage these businesses.

Commenting on this, Gauhar said, “We want to hand over the power distribution companies to the provinces … the provinces got money through the divisible pool and they should run the companies.”

He suggested that provinces could opt for the public-private partnership model to manage DISCOs. “In this way, DISCOs can be executed efficiently. This will not only improve energy companies, but also attract some investment. “

Another proposal was to split the DISCOs into small businesses for efficient management, to solve the debt problem and to reduce losses.

Gauhar pleaded for an end to inter-DISCO grants. “Why should the consumers of one distribution company bear the burden of the losses of another company,” he asked and stressed that splitting DISCOs would help end the subsidy.

It has also been proposed to provide a targeted subsidy to consumers and an investigation is underway in this regard. The government would provide the subsidy on the model of the Ehsaas or Benazir Income Support program, he added.

However, the adviser pointed out, the best option was for the provinces to take control of DISCOs and provide subsidies to their consumers.

The government is working on the introduction of prepaid cards for electricity consumers. “We plan to install prepaid meters for 0.1 million consumers of Peshawar Electric Supply Company,” he said.

Regarding politically motivated appointments to DISCO boards, the assistant prime minister said the role of the federal government should be limited to policy making and it should distance itself from DISCOs.

“The main emphasis must be on appointing competent boards of directors and empowering them to run companies through effective policy making.”

Gauhar stressed that boards should select business leaders, who would be given performance tasks. If the heads fail to meet the goals, you have to show them the door.

He revealed that the government is studying an off-grid micro-grid model and will apply it to Balochistan, which will help reduce losses. “If this model is successful, it will be extended to other regions of the country.”

The government also plans to increase the share of renewable energy from 4% to 30% by 2030. It will discuss the matter with the State Bank of Pakistan for financing small solar power and micro-grid projects. .

On liquefied natural gas (LNG) power plants, Gauhar said the government wanted to privatize the plants and discussions were underway with banks to convert PSDP funding into project debt.

There were interest rate issues, which would soon be resolved with the National Electric Power Regulatory Authority, he said.

The Prime Minister’s assistant supported the call to break the monopoly of K-Electric in Karachi to protect the interests of consumers. However, he said, there should be a policy in place for the entry of other companies and provide a level playing field for all.

Responding to a question about the planned acquisition of the controlling stake in K-Electric by Shanghai Electric Power, Gauhar said an agreement in this regard should be placed under the umbrella of the China-Pakistan Economic Corridor (CPEC). The Chinese company should invest more in K-Electric, he said.

When asked about the debt and claims dispute between Sui Southern Gas Company and K-Electric, he suggested that the matter be settled by a tribunal or arbitral tribunal, which would be binding on all parties.

Posted in The Express Tribune on October 16, 2020.

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