Water and Power Development Authority (Wapda) has approached Nepra, seeking an average increase in hydropower tariffs of 117 percent – from 1.74 rupee per unit in 2014-15 to 3.78 rupees per unit in 2015-16.
Wapda’s determined revenue requirements are 120 billion rupees in 2015-16 in comparison to 55 billion rupees in 2014-15 – a rise justified on account of a rise in regulatory asset base, increase in operation and maintenance costs, increase in net hydel profits and water usage charges, other income from Nepra-regulated business activities, debt equity ratio, weighted average cost of capital and regulatory revenue gap.
The debt equity ratio for next fiscal year has been worked out at 81:19 for hydel power projects as against the average of 45:55 adopted in the tariff determination for 2014-15. Hydel remains the cheapest energy source upon which the incumbent government has focused, rhetorically at least, as a means to combat the severe energy shortfall in the long-term.
The higher reliance on borrowing reflected in the rise in the debt equity ratio no doubt contributes to the request by Wapda to raise tariffs. And in this context, one would have hoped that the federal Public Sector Development Programme had prioritised the power sector over the road sector.
In budget 2014-15 the government allocated 63.6 billion rupees to Wapda (power) and 111.5 billion rupees to National Highway Authority while in the revised estimates of the year Wapda received a lower allocation of 49 billion rupees and NHA 109.4 billion rupees. Next fiscal year the allocation has been budgeted at 112 billion rupees for Wapda and 159.6 billion rupees for NHA or the priority on building roads remains.
The Economic Survey 2014-15 while citing Nepra stated that “the power sector is responsible for a 2 to 3 percent reduction in the annual Gross Domestic Product of the country”, but acknowledged that the exact cost, including direct and indirect cost of power shortages, and its directional relationship with growth is still unfolding for developing countries especially for Pakistan. However estimates indicate that the shortfall in energy supply in Pakistan is costing the economy from between 0.75 to one percent of GDP – a significant amount that is having major negative repercussions on national productivity as well as tax collections.
In other words, one would have hoped that a larger amount had been earmarked for Wapda and the 28.5 billion rupees allocated for special federal development programmes that are not identified is diverted to Wapda.
Ministry of Water and Power claims that it has also taken short- and medium-term measures to deal with energy shortages. These include improving the transmission system that can now withstand around 16500 MW whereas previously it had the lower capacity of 15000 MW.
The government’s claims that generation has increased is belied by data in the Economic Survey 2014-15: installed capacity of 23530 MW in 2013-14 rose to 23840 MW in 2014-15; however, disturbingly generation at 73,435 GW/h in July-March 2013-14 declined to 71,712 GW/h in July-March 2014-15.
The Ministry also claims that it has begun to proactively deal with electricity theft by linking the hours of loadshedding in any area with the loss/recovery ratio of that area. Opposition parties blame this policy of the government for the hundreds of deaths in Sindh given that the poor areas have a high level of receivables.
The question is why is loadshedding in excess of 10 hours in major cities and more than 14 hours in rural areas – figures that are comparable to those that were prevalent during the tenure of the PPP-led coalition government? It must be first acknowledged that Pakistan’s installed capacity is 23530 MW but it is compromised in different seasons, hydel electricity generation is lower in the winter months as well as during annual canal closures, massive transmission and distribution losses (the highest in the region with improvement cited at 0.5 percent) and the circular debt.
The PPP government dealt with the circular debt largely by parking it in the newly-established Power Holding Company while the PML-N government borrowed the amount from banks to eliminate the debt.
Not surprisingly it has resurfaced and at present it is nearing 300 billion rupees again which, in turn, not only compromises the liquidity of the sector by periodically disabling Pakistan State Oil from opening letters of credit to import fuel from the international marketplace but also requires massive subsidies which the federal government can ill afford.
The Opposition has come together and sought a Council of Common Interests (CCI) meeting to discuss loadshedding where each of the three national parties would have a say. It is hoped that the government does summon a meeting of the CCI as that platform can be effectively used to not only ease Opposition concerns but also respond to suggestions that power sector be prioritised as the highest recipient of federal development funds.
Source: Business Recorder