State-owned distribution companies’ losses reach Rs1.35 trillion

ISLAMABAD: Inefficient state-owned electricity distribution companies have so far incurred accumulated losses of Rs1.35 trillion in five years and played a major role in piling up the circular debt, which crossed Rs2.3 trillion.

A leading think-tank Prime Institute in a report on “State-Owned Electricity Distribution Companies: a performance review” finds unsatisfactory performance of the state-owned power sector distribution companies and recommended policy reforms.

The distribution companies are continuously accumulating losses, which amounts to Rs1.355 trillion in five years (2016/2020). The report highlights the underlying reason for inefficiencies such as delay in the structural reforms and continuous bailouts by the government, which eliminates the need for improvement.

“As per our findings, the Ministry of Power or Nepra didn’t take any concrete measures to improve the performance of the distribution companies,” said Tuaha Adil, research economist at the Prime Institute, during the presentation.

He said the Ministry of Power instead of addressing the issues, which made these distribution massive loss-making entities tried to put them under the carpet.

From 2016/20, the report highlights that the distribution companies accumulated losses of Rs452 billion in terms of inability to recover billed amount, while the loss of Rs195 billion was accrued due to the outdated transmission and distribution infrastructure.

The underlying reason for transmission and distribution losses remains the lack of adequate investment on behalf of some distribution companies, while some invested more than the allowed limit.

The distribution companies were also found to be in breach of the Nepra targets, and for which small penalties were also imposed but there is still prevalence of defiance. Therefore, the government has to bailout distribution companies every year to keep them afloat, which cost Rs708.4 billion during the period under review.

Despite the surplus generation capacity in the country, there is still prevalence of the power outages and consumers faced average daily load-shedding of more than two hours in some regions. Consumers also faced disruption in services for which complaints were registered and some distribution companies received large complaints; thus, depicting low consumer satisfaction.

Public safety is an important component of the performance evaluation and incidence of 680 fatal accidents in five years display a grim picture and non-compliance of the safety protocols.

Further, Nepra also appears unable to ensure the implementation of safety protocols. “Nepra hardly criticises or imposes heavy fines on [the] state-owned distribution companies for this criminal negligence,” Tuaha said.

The report displays delays in the provision of new utility connections to the public, depending upon the size of the population. The total pending connections stood at 1.2 million in five years. These delays can be attributed to underutilisation of surplus generation capacity.

The report recommends that the government should undertake policy and technical reforms for higher efficiency of the sector; therefore, a sustainable framework is needed for the power sector reforms, starting with complete or segment-wise privatisation of the state-owned entities, review of tariff regime to reflect costs and better implementation of the policies through more empowered and resourceful Nepra.

Besides policy reforms, attention is also needed towards upgradation of entire distribution infrastructure to curb losses.