High rates are unlikely to control debt | Instant News


Circular debts haunt every government and the same is true of the current government of Pakistan Tehreek-e-Insaf (PTI).

It has made efforts to control losses and improve bill recovery. However, the debt continued to soar and now exceeds Rs2 trillion.

Wrong agreements with independent power producers (IPPs) were mainly blamed for rising electricity prices. Capacity payments to power producers are said to have reached Rs900 billion and will surge to Rs1.6 trillion in the coming years.

A close aide to Prime Minister Imran Khan said raising electricity rates was not the solution and that the best solution could be different steps under reform of the power sector.

“We are working to reach a revised agreement with IPP to reduce tariffs and turn the MoU into a legally binding agreement,” Tabish Gauhar, Special Assistant to PM at Power, said while speaking with The Express Tribune.

Under the revised deal, the IPP has agreed to reduce return on equity, remove dollar indexation, pull back a portion of excess revenue and share it with consumers.

The government will also seek to increase the tenor of the debt from 10 years to 20 years for newer projects that are under construction or are under construction.

Gauhar gave an example that there were several power plants that invested in rupees, but the returns were related to the US dollar and the anomaly was corrected. However, he said the power plants borrowed from foreign banks would be allowed to continue indexing the dollar.

Responding to questions about how foreign investors would react to renegotiating the agreement with the IPP, the PM’s aide said, ‚ÄúThis is unprecedented and many countries take such initiatives if their economies are not sustainable, which is clearly the case with Pakistan’s strength. sector.”

There has been discussion for a long time that the power distribution company (DISCO) should be handed over to the provinces for better management. At the same time, it is argued that the province does not have the necessary capacity to run these enterprises.

Commenting on that, Gauhar said, “We want to hand over the electricity distribution company to the provinces … the provinces have received money through a divisible pool and they have to run the company.”

He suggested that the province could choose a public-private partnership model to run DISCO. “In this way, DISCO can be run in an effective way. This will not only bring improvements in energy companies but will also attract some investment. “

Another proposal is to divide DISCO into small companies for effective management, solving debt problems and reducing losses.

Gauhar recommends an end to inter-DISCO subsidies. “Why should the consumer of one distribution company have to bear the brunt of another company’s losses,” he asked and emphasized that splitting DISCO would help end subsidies.

It has also been proposed to provide targeted subsidies to consumers and a survey is underway on this. The government will provide subsidies for the Ehsaas or Benazir Income Assistance Program, he added.

However, the advisor stressed, the best option is for the province to control DISCO and provide subsidies to its consumers.

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

Regarding the politically motivated appointment to the DISCO board of directors, the PM’s aides said the role of the federal government should be limited to policymaking and should distance itself from DISCO.

“The main focus should be on appointing capable boards and they should be given the autonomy to run the company through effective policy making.”

Gauhar emphasized that the board of directors must choose a company leader who will be given a performance task. If the heads fail to hit the target, they must be shown the door.

He revealed that the government is studying the offgrid micro network model and will enforce it in Balochistan, which will help reduce losses. “If this model is successful, this model will be extended to other parts of the country.”

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

Regarding liquefied natural gas (LNG) -based power plants, Gauhar said the government wants to privatize the plant and there are ongoing discussions with banks to convert PSDP funding into project debt.

“There are several issues related to interest rates that will soon be resolved with the National Electricity Regulatory Agency,” he said.

The PM’s aides supported calls to violate K-Electric’s monopoly in Karachi to protect consumer interests. However, he said, there must be a policy for the entry of other companies and providing an equal playing field for all.

Responding to a question about the planned acquisition of a majority stake in K-Electric by Shanghai Electric Power, Gauhar said the deal should be carried out under the umbrella of the China-Pakistan Economic Corridor (CPEC). Chinese companies should invest more in K-Electric, he stressed.

For inquiries regarding the receivables dispute between Sui Southern Gas Company and K-Electric, he suggested that the matter be resolved either through a court or an arbitral tribunal, which would bind all parties.

Published in The Express Tribune, October 16th, 2020.

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