There is a counter point of view as well. As per info available to this writer, significant progress and renovation has been done with regard to SCADA (Supervisory Control and Data Acquisition) and several aid agencies like JICA and others have helped in this respect. The situation at NPCC (National Power Construction Corporation) may not be as bad as Nepra’s report seems to have characterized it. May be their info is outdated. Nonetheless, Merit Order (MO) is the best tool to minimize fuel cost and the reasons for deviations must be handled by the relevant agencies and stake-holders. A protocol for allowing deviation from merit order may have to be developed.
KE fuel excessive costs
Nepra’s report has a similar verdict on KE’s operations. Nepra says that most of the KE power plants have completed their economic and technical life but KE insists on their operation. KE instead of trying to operate in sync with NTDC (National Transmission and Dispatch Company) system, under one pretext or the other, tries to run in solo whereby it operates its fuel inefficient power plants while more efficient power plants in NTDC system remain idle or underutilized. Local gas is misused. Similarly, KE went ahead with the procurement of new LNG power plants while several LNG power plants in NTDC system were available. These are the virtues of cost-plus system where companies don’t care as they would be able to pass costs on to consumers or the government which has to willy-nilly bail them out. This is all what Nepra’s report is saying and not this writer.
There are three types of losses: Transmission losses, Distribution losses and Commercial losses (dues not received).Distribution losses are of two types: technical and non-technical. Non-technical losses are essentially theft. It is said that both rich and the poor steal electricity. Industries and commercial enterprises also steal electricity. Transmission losses are 2.63% while Distribution losses are 17.13%. Nepra recognizes and reimburses only 13.41% of Discos’ losses which are charged to the customers, while the remaining goes towards the losses of Discos. Total Discos’ billing in 2021-22 amounted to Rs.2.3 trillion out of which the recovery losses were 6.91% amounting to Rs. 230 billion and T&D losses were 17.13% amounting to 520.3 billion. Gross losses were thus of Rs.750.3 billion. Nepra recognized only Rs.343 billion losses, bringing the net losses to Rs.573 billion.
It is not known as to how much is theft and how much are technical losses; 5% could be assumed as technical losses and the rest to be the theft. 17% Disco/distribution losses are an average, while individual Discos’ losses may be varied; Pesco (37.47%), Mepco (14.84 %), Hesco (32.88%), Lesco (11.42%) and Iesco (8.18%).Despite purported efforts of Discos’ management, theft could not be controlled, although improvements have been achieved in reducing technical losses. High losses Discos suffer from law and order problems, the writ of the government or Discos’ is not there in these areas. Preventive measures cannot be taken in these areas. In the short term, it is highly likely that electricity theft or uncollectable receivables may increase due to unaffordably high tariff. While increasing tariff for whatever legitimate reasons, one may have to assess and balance the purported revenue increase vis-à-vis theft losses causing revenue decrease.
Lesser emphasis on ATC loss reduction
While many problems and their solutions have been identified by the report, not much wisdom has been offered in the case of AT&C losses which are perhaps one of the major issues. There is a lot that can be done and is not being done. Although primary responsibility is of DISCOs themselves, NEPRA can be of help. There are technical and non-technical solutions. KE, despite its other problems, has managed to reduce AT&C losses and has a few solutions example to offer. There is success example in the region which can be borrowed. Nepra can get a loss-reduction plan under expert guidance and stakeholder consultation and enforce the plan in this respect using carrot and stick approach.
In the gas sector, there is a similar issue called UFG losses. Ogra (Oil & Gas Regulation Authority) has been more successful in handling this problem. At least, one of the two gas distribution companies managed to reduce its UFG. Ogra developed and enforced a UFG reduction plan with incentives and monitored it diligently. Ogra continues to do it. Benefiting from this experience, Nepra can possibly do better. Nepra has to focus on it. Had Nepra applied half the effort as it applied in relation to CTBCM (Competitive Trading Bilateral Control Market), it would have succeeded in ATC loss reduction. There is still time and opportunity to get going on it.
Smart Meters Strategy
Fortunately, some good news has coming in this respect from the Power Division which has issued smart meter installation strategy on Distribution Transformer, scrapping a useless scheme of target-less installation of smart meters in residential areas. The issue has been debated since 2014. Smart meter installation on DTs can be implemented within two years in comparatively smaller budget and enable Discos to identify high loss priority DT areas and take action. The alternative scheme offered by ADB (Asian Development Bank) would have taken many years and would have required several billion USD which kind of money could have never been available and now in the current circumstances. The DT approach would be able to introduce DT automation and monitoring other parameters. Our bureaucracy has finally stood up against supply-side pressures of powerful IFIs. Perhaps the IFIs themselves also understood the merit of alternative indigenous proposal.
Other Disco Inefficiencies: SOI points out non-commercial attitude of DISCOs ignoring availability of cheaper electricity sources which are available at 11 kV level. Bagasse-fired generation in sugar plants has been cited as an example wherein some cheaper electricity is available at Rs.7.46 per kWh as opposed to its average buying rate of Rs 6-30 per kWh. At least six sugar mills have been trying to sell. This has resulted in a loss of Rs.1.8 billion in two years; and the loss of foreign exchange. Similarly, wind power plants’ inaction on the part of Discos has been cited.
DISCOs can’t pay off their debt to IPPs (Independent Power Producers), CPPA-G and to other suppliers and agencies and thus these losses are accumulated and give rise to circular debt. Also, GoP promises to give tariff subsidies, which is passed on to the customer but GoP does not pay it or pays it partially. As of 30-06-2022, a total amount of Rs. 83,399 million is payable to Discos on account of unpaid tariff differential subsidy. Discos do not have the means to pay and thus they don’t pay to the generators and generators do not pay to the fuel suppliers. This is called circular debt. As of 30-06-2022, the circular debt stood at Rs. 2,252,750 million as against Rs. 2,280,149 million during FY 2020-21. Under internationally high fuel costs, circular debt will not come down or start coming down. Most likely, it would increase. Any attempt to reduce circular debt in high inflation circumstances would likely lead to political destabilization and even anarchy.
Power Generation Tariff Issues
The SOI report discusses the high generation tariff which as contributed in high electricity cost and circular debt. Fortunately, the practice of upfront tariff has been dropped, although it saved time. But it promoted background pressures and manipulations. Competitive tariff of solicited projects is being talked about. It was therein almost all policies, but has never been practiced. Even much talked about Reverse Auction Mechanism (RAM) has not been implemented in case of Renewable Energy (RE). It is an open secret that overstating CAPEX has been pure malice in power sector which should have been controlled by Nepra. One is not able to find any credible capex study in the record which could be made a basis of awarding tariff. Nor is there any credible study on interest rates of foreign loans. Cash flow model has been adopted which maximizes cash flow to investors. NEPRA has proposed renegotiating project debts to correct this. In a background of late payments of IPP dues, the chances of success do not appear bright. IPPs have already given concessions. Increasing capacity utilization can reduce CPPA and GoP generation losses and reduce electricity prices. The right time and opportunity are through competition in the very beginning. The reader is referred to this writer’s recent article on Competitive Power Market in this space.
Privatization and Reorganization of DISCOs
Privatization of DISCOs has been on the cards of successive governments for a long time. As a result, the required efforts and investments have not been done. Reorganization of DISCOs into smaller organizations could have brought about improved control and efficiency along with other changes. IPPs have attracted more attention of the private sector due to lesser problems and rather lucrative returns. Tariff subsidies requirement and debts have also made privatization difficult.
CTBCM may bring a partial privatization by limiting Discos’ role to wires, operations and maintenance of the assets and technical operations and services while the electricity sales is to be given to independent private sector companies. And there may be more than one company in Discos’ franchised areas. This may be an easier approach supporting both purposes-privatization and as well as bringing in competition. It may also be acceptable to banks and the labour unions.
Pepco had been disbanded, assuming the Disco autonomy could bring results under an improved Board of Directors. It is alleged and perhaps rightly so that bureaucratic controls have increased. Pepco has been revived in a different form to be a technical advisory body. Hopefully, this may give results if right human resources are inducted. Even under privatization regime, there is a need for the role of a technical advisory body. It is hoped that it is brought into operation without further delay.
Need of Indigenization
It is pleasant to find emphasis in the report on developing and using local material and equipment. This is a neglected aspect in the energy sector as a whole. As most projects are externally financed, investors and financers tend to maximize the usage of their own countries’ inputs for obvious reasons. Also, as we are always in a hurry to implement projects as soon as possible and local development and procurement being time consuming, indigenization is sacrificed. There was a time when there was a move to close down Engineering Development Board (EDB) as such. Local products may initially be slightly expensive for a variety of reasons and thus require support of tariff and non-tariff barriers. Nepra may also consider building some localization incentives in the tariff on the style of Turkey and India. Tariff support in these two countries has helped them in building local engineering base in the power sector. In the present circumstances, the issue has acquired added importance.
Closing down the old plants
Generally speaking, old power plants completing their life of 25-30 years are inefficient and outdated and must be closed down. It may be truer for GENCOs than for IPPS as the latter might have maintained their plants better. However, the location and infrastructure of such plants may be offering a number of advantages. GoP has already decided to close down most of the GENCOs and install solar power plants there, IPPs may pose a problem as under PPAs ,these are under BOO.IPPs continue to own the residual assets. Many IPPs have tried to get their PPAs extended .Reportedly, their cases are being reviewed under Take and Pay arrangements. These may be considered to be included under CTBCM.
To conclude, Nepra can play a more active role in removing the ills of the power sector, although publishing of an annual report on the problems and issues is in itself useful and commendable. It has tremendous powers and independence. Nepra has both carrots and sticks to offer. Fortunately, more role and powers have been given to Nepra over time. There are areas such as AT&C losses and others where Nepra can be more active. However, there are constraints in exercise of powers in this problems ridden country of ours. There are, however, ways and means for resolving the power sector problems through initiatives, coordination and leadership. Many lessons have been learnt by the country and task has been made probably easier.
(The writer is former Member Energy, Planning Commission and author of several books on the energy sector)
5.5 RECOVERY RATIOS IN D1SCOS 5YSTE
A comparison of recovery percentages of DISCOs over last two years is given below:
Description PESCO TESCO IESCO GEPCO LESCO FESCO MEPCO HESCO SEPCO QESCO Overall
Billed 233591 43386 289977 252986 587306 366707 400711 88892 63209 96523 2423292
Realized 214419 28728 277284 248407 567887 347777 368972 65530 40314 34053 2193375
2021-22 91.79 66.22 95.62 98.19 96.69 94.84 92.08 73.72 63.78 35.28 90.51
2020-21 101.87 83.27 116.87 105.1 98.72 97.2 102.15 75.63 64.48 39.8 97.30
Inc-/(Dec) -10.08 -17.05 -21.25 -6.91 -2.03 -2.36 -10.07 -1.91 -0.7 -4.52 -6.79
5.4 TRANSMISSION AND DISTRIBUTION LOSSES OF DISCOs
The following table shows a comparison between of T&D losses for the FY 2020-21 and FY 2021-22 in
FY 2021-22 Target Actual Amount of Actual Unit Lost
DISCO (Unit in GWh) Losses (%) Losses (%) (Rs. in billion)
Purchase Sold Lost 2021-22 2020-21 2021-22 2021-22
PESCO 16560 10355 6205 20.73 38.18 37.47 153.80
TESCO 2284 2071 213 9.31 9.58 9.33 3.70
IESCO 13027 11961 1066 8.15 8.54 8.18 21.90
GEPCO 12678 11528 1150 9.2 9.23 9.07 24.70
LESCO 28334 25070 3264 9.08 11.96 11.52 72.70
FESCO 17512 15918 1594 9.34 9.28 9.10 33.40
MEPCO 22548 19202 3346 12.79 14.93 14.84 75.10
HESCO 6010 4034 1976 19.07 38.55 32.88 45.00
SEPCO 4489 2890 1599 17.41 35.27 35.62 43.70
QESCO 6716 4831 1885 14.49 27.92 28.07 46.30
Average 130158 107860 22298 13.41 17.95 17.13 520.30
S. No. Power Plant Capacity Net Efficiency Utilization PLAC
(MW) (%) Factor (%) (Rs. Million)
1 QATPL 1231 61.62 67.11 8.291
2 HBS 1277 61.47 87.74 8.353
3 Balloki 1276 60.27 81.45 8.306
4 Orient Power 225 51.20 59.37 1.191
5 Saif Power 225 51.20 41.45 1.209
6 Sapphire Electric 235 51.20 43.19 1.256
7 Halmore Power 225 51.18 41.94 1.031
Note: The availability factor of gas based power plants around the globe in above 92%
The EPP of a few RFO power plant and their utilization in July. 2021 and June. 2022 are given below:
Month Description Jamshoro Hub Saba LaLpir Pakgen
Power Power Power Power Power
July. EPP Rs./kWh 23.56 16.87 19.56 19.46 19.73
2021 Utilization Factor (%) 15 23 33 53 58
June. EPP Rs./kWh 44.31 38.99 38.25 39.17 39.21
2022 Utilization Factor (%) 10 15 31 58 63
Source: CPPA-G/NEPRASyed Akhtar Ali, "Nepra’s SOI report 2022: a comment — II," Business recorder. 2022-10-09.
Keywords: Economics , Data acquisition , Construction corporation , National transmission , Competitive power , CADA , JICA , Nepra , CPPA , CTBCM