The ghost in the machine
THIS is one pun I’m not apologising for. For years now it’s been strongly suspected that a practice known as ‘ghost billing’ is rampant in our power sector.
Thanks to the energetic efforts of the board members of the Lahore Electric Supply Company (Lesco), we now have the first documented proof of this activity.
The finding is of immense importance; in fact it is critical to understanding how to resolve the power crisis that is amongst the top economic problems facing this country.
First a little background. A couple of years ago, under a little-known reform measure spearheaded by the Planning Commission, a set of independent boards of directors were created for what are known as the ‘DISCOs’ in the peculiar acronym-laden parlance of the power sector.
DISCO is short form for ‘Distribution Company’ and there are a total of 10 such companies in Pakistan. They are part of the bundle of companies huddled under the umbrella of the state-owned Pakistan Electric Power Company (Pepco), which together generates, transmits and distributes all electricity in Pakistan.
The DISCOs are the ‘last mile’ in this chain, so to speak. They are state-owned entities that ‘buy’ their electricity from the state-owned bulk transmission and despatch company, and then distribute this electricity to the final customers in their distribution area, which include various categories from residential to commercial and industrial and other bulk consumers, to street lighting and tube wells.
Installing independent boards atop the DISCOs was in fact an old and tested way of reforming sick public-sector enterprises. In the late nineties, for instance, the Nawaz Sharif government had used the practice very successfully in the public sector banks at that time to help clean up the banks’ balance sheets and prepare them for privatisation.
So under the noise and chaos of the power crisis, behind the scenes of rioting mobs and tyres burning in the streets, a solid reform effort is being quietly advanced as these independent boards have been silently engaged in a tussle to get the affairs of their respective DISCOs in order.
But it’s proving to be a gritty battle because the boards are facing a power-sector bureaucracy that is focused on producing the wrong kind of power altogether. They fail in supplying reliable electric power to the country but excel at preserving the sources of their own bureaucratic power.
A story unfolding in Lahore makes this clear. A few months ago, a small victory allowed the board of Lesco to create a new reporting line for the company’s internal audit department — in line with international best practices where the board receives vital information regarding the company directly from the company’s own auditors.
On Feb 3, this year the Lesco board decided to exercise its newly acquired powers. It asked the auditors to look into some strange numbers coming out of the company’s Kasur circle, where the amounts being written off under ‘credit adjustment’ in the period between 2009 and 2011 were very large — Rs627m to be precise.
On April 13, the audit department came back with a detailed report on the story behind the abnormally high amounts of ‘credit adjustment’ being made in Kasur circle.
“A large number of consumers were overbilled,” said the report, “but instead of affording credit through adjustment notes, the amounts were set asided [sic] by AM(CS) on the instructions of AM(O)’s duly approved by DM(O)’s.”
Translation: Lesco’s entire operations machinery in Kasur circle was complicit in this overbilling scandal.
“All the meter readers, meter reading supervisor…are responsible for overbilling and officers responsible … were aware of the bad game being played,” noted the auditors.
But why overbill customers only to credit the amount later? “It was done to cover line losses.…” explains the report.
And that, folks, is what they call ‘ghost billing’, where you generate fictitious bills in order to bring down your number for line losses — which are the difference between units billed and units purchased by a DISCO — either by billing imaginary customers or by overbilling those already in the system.
It’s an easy and old way to fudge numbers at the billing end of the power supply chain, and the Lesco report which details this practice in one circle is the first time this practice has been documented. Now consider that Lesco has eight circles in all, many of them larger than the Kasur circle. Consider also that there are 10 DISCOs in the country where this practice is rampant.
In addition, all DISCOs report a certain figure under the head of ‘provision for bad debts’. This is the amount of unrecoverable bills that are eventually converted into ‘loans’ and the loans are then written off. For Hesco, the amount was Rs2.2bn in fiscal year ended June 2011. For Qesco, it was Rs1bn in June 2009, against total sales of Rs4.1bn. For Pesco, it was Rs1.6bn in fiscal year ended June 2010, and so on.
These ‘provisions for bad debts’ are then bundled by these entities into the cost of distributing electricity, which is added to the power purchase price to yield the end user tariff, i.e. the cost that will be billed to you and me. So not only are those of us who pay their bills regularly vulnerable to ‘overbilling’, but failure to recover from other people is also billed to us through the end user tariff.
The best antidote to these practices is transparency. Kick down the doors of the power bureaucracy, bust open the windows and let the full light of day shine in, to make the power bureaucracy subordinate to independent oversight and transparent accounting.
Throwing money at this bureaucracy is the worst thing one can do, because just like that plant from the Little Shop of Horrors, this beast has assumed monstrous proportions fed on a diet of public money and will forever demand more and more even as it gives us less and less.
The writer is a Karachi-based journalist covering business and economic policy.