ISLAMABAD: Despite historic addition to power generation capacity, the country’s power sector continues to be in a dismal state and is facing major challenges of sustainability and affordability.

This has been concluded by the National Electric Power Regulatory Authority (Nepra) in its flagship State of the Industry Report 2017 in which it also complained of a very compromised regulatory role to deal with emerging issues.

The regulator said the power sector suffered Rs112 billion accumulation of circular debt due to its inability to meet targets for loss reduction (Rs31bn) and recovery (Rs81bn) during the fiscal year 2016-17. At the same time, the increased generation capacity would keep adding to the overall electricity tariff for consumers because of increased capacity payments.

Nepra said the capacity payments to private power companies amounted to Rs280bn in 2015-16, which increased to Rs350bn in 2016-17 and to Rs490bn in 2017-18. As a consequence, the per unit (kwh) cost of capacity payment, which stood at Rs3.40 in 2015-16, increased to Rs4.1 per unit in 2016-17 and to Rs5 in 2017-18.

Suffers Rs112bn circular debt accumulation due to its inability to meet targets for loss reduction, recovery

The regulator concluded that with the current implementation and planned generation additions, the country would have generation capacity surplus position for the next five to six years, ensuring sufficient margins for a reliable power supply. The question of dependence on dirty imported fuels has been partly addressed as no new power plants have been planned on furnace oil and relatively clean RLNG fuel has been introduced.

Similarly, the federal government has also put a cap on power generation plants using imported coal. However, more than 12,000MW power plants are expected to use imported RLNG by 2020-21. Therefore, power sector consumers will not get any reprieve from international price uncertainties.

The regulator said the prices of solar and wind-based technology had fallen over the past three years, and now their resulting tariff was quite attractive in comparison with other technologies, but this could not be materialised due to absence of clear policies of the Ministry of Energy (power division).

Also, the induction of small hydropower plants could not take place due to different procedural issues. Due to their robust nature and cheap rates, these plants have useful operating life of more than 50 years, and there was no reason on part of the Central Power Purchasing Agency to discourage their induction into the system.

Nepra also noted with concern that networks in the National Transmission and Dispatch Company (NTDC) and most of the distribution companies (Discos) were not adequate to transmit electricity under different system conditions. With the addition of new generation facilities over a short span of time, the capacity payments are bound to increase. In order to minimise the impact of increased capacity component in consumer-end tariff, multi-pronged strategies are needed to be followed.

The regulator regretted that K-Electric continued to underutilise its generation facilities and failed to add sufficient transformation capacity to its network, which resulted in an unreliable system operation, frequent tripping of networks and prolonged loadshedding during the fiscal year 2016-17.

Nepra reported that till 2020, KE could barely meet the expected demand at peak times and outage of a power plant or even a single unit of around 200MW might result in overall breakdown of the system. Even the surplus expected in 2021 would not be enough to operate the KE system with technically prudent margins.

The regulator was of the opinion that the role of provincial bodies had become more important in overcoming power sector issues, but some of the provincial agencies lacked management and procedural capacity and necessary skills for developing generation resources efficiently.

It said the sufficient generation capability would be available in the NTDC system to meet future demand at peak times representing power surplus scenario. However, the capacity surplus in later years i.e. 2022 to 2025 may not be available due to multiple issues and resulting uncertainties in completion of large hydropower projects.

Sufficient generation capacity and that under implementation and its evacuation has put extra burden on transmission and distribution sectors. Infrastructure deficit and absence of performance improvement in these sectors may hamper the economic benefits foreseen due to huge investment in the generation facilities, the regulator said.

Nepra said it allowed huge investment funds every year to Discos so that new and critical projects could be initiated and completed on time and had been asking the power division to address this critical issue. “It is, however, observed that Discos’ performance in this area remained unsatisfactory. Except for one or two companies, the others have remained oblivious to gravity of the matter,” it said.

The regulator bemoaned that its role and powers had been curtailed in the name of reforms as part of the energy policy and plan. The qualifying experience of the Nepra chairman and members had been reduced from 20 to 12 years — the retirement ages decreased from 65 to 60 years.

The concepts of the national electricity policy and national electricity plan have been introduced in the law under which the regulator has to exercise its mandate in subservience to the policy and plan. The law has further introduced frameworks for establishment and functioning of an appellate tribunal, under which all orders and determinations of the regulator will be appealable.

“As such, the regulator shall be facing innumerable challenges in effectuating the reforms introduced” because all functions are now subject and subservient to both the policy and plan, and are directly appealable before the appellate tribunal. These frameworks curtail the autonomy of the regulator in material respects.

The establishment of the appellate tribunal and district-level consumer complaint offices poses further challenges to Nepra. The appellate tribunal is to be manned by three members with diverse experiences and expertise. However, it will be challenging for the tribunal to adjudicate on complex matters that Nepra, with its 100 professionals holding immeasurable cumulative expertise in the sector, itself executes.

Various avant-garde concepts have been introduced in the amended law without necessary elaboration. For instance, no parameters for the national electricity plan have been specified, the function/role of electricity trader licensee has not been provided and the statutory provisions do not explicitly provide for treatment of consumer-end tariff under the new law.

There are also various inconsistencies found in the law like introduction of a uniform tariff that conflicts with the provisions relating to competition and savings under preceding law that creates conflict between provisions of existing saved licences and statutory provisions. These concerns lay significant challenges before the authority in the exercise of its functions going forward and need to be debated by the relevant stakeholders to move forward.

Published in Dawn, July 30th, 2018