Minister for Power Umer Ayub at a press conference stated that during 2017-18 circular debt increased by 450 billion rupees which will be brought down to 293 billion rupees in the current year and 96 billion rupees in 2019-20; by 2020-21 fiscal year the flow of circular debt, not the stock parked at PHPL, would be zero, he pledged. Around 61 billion rupees out of the 450 billion rupee circular debt last fiscal year was recovered from electricity thieves, the Minister added, through a vigorous campaign with 27,000 FIRs lodged against the defaulters and 4,225 arrests were made. He further stated that a 25-year plan was finalized during the cabinet meeting to bridge the demand-supply gap (installed capacity 30,000MW with generation at 24,000MW) and a fresh policy for power generation through alternate energy resources has been formulated (envisaging 20 percent of total power from alternate energy sources) by 2025.
Such promises were also made by previous administrations but without success. The reason: underlying issues in the power sector dating back to the extremely attractive deals offered to Independent Power Producers (IPPs) over and above what was on offer by other countries at the time, with the objective of meeting the shortfall, continued well beyond the need and to the detriment of the economy. Delayed payments to IPPs have prompted them to seek arbitration or move the court and, more recently, six IPPs challenged Nepra's order 9/01/2013 to retroactively revise and reduce tariffs to make the project unviable with the counsel arguing that Nepra's tariff determination does not allow the petitioners to make a profit.
The PPP government approved rental power project agreements at terms and conditions that, a third party audit carried out by the Asian Development Bank, the lead agency in the sector, concluded, were (i) weak in their legal structure; (ii) did not balance the risk sharing between the electricity seller and the buyer; and (iii) had many inconsistencies. The audit further noted that the RPP contracts gave financial benefit to the projects' sponsors, raising questions of transparency in award of contracts and most damning of all was the report's contention that "from the consumer's perspective under the no-RPP scenario, in fiscal year 2011 they (consumers) will face a tariff of 9.23 rupees per unit that is an increase of 67 percent over two years. With 14 RPPs the tariff increases by 80 percent to 9.96 rupees per unit. In case of 8 RPPs, the tariff will increase by 75 percent to 9.68 rupees per unit."
The PML-N government eliminated the circular debt by borrowing to the tune of 480 billion rupees on the second last day of 2012-13 without following proper rules and procedures. Additionally the Sharif government focused on generation even though the transmission system was known to be able to vacate no more than 16,000MW.
The ADB evaluation on the power sector uploaded in January 2019 (2005-17) acknowledged that its "contribution has been limited in terms of addressing the circular debt problem, improving the financial sustainability of the power sector as well as improving institutional efficiency." The report emphasizes the problems associated with "incomplete unbundling of Wapda that created independent power companies only on paper. Discos, Gencos and other sector state-owned entities are still directed by the Ministry of Energy, are regularly rescued by the government, and have directors that are political appointments." Be that as it may, the recommendations of the report are standard normal, for example, privatisation of Discos (which is simply not doable for a political government given staff resistance - a condition just as applicable in advanced countries like France however), integrated energy planning to minimize costs through the use of indigenous/cheaper fuel, and the most important of all, the government must allow independent audits of the power sector including inefficiently-run obsolete Gencos.
The International Monetary Fund (IMF) team came to Pakistan to negotiate a bailout package and one does not have to be a fly on the wall to these negotiations to conclude that power sector reforms would be one of the main sticking points in the discussions. The previous government agreed and delivered, albeit partially, on the following Fund conditions as stipulated in the Letter of Intent dated 2013: (i) national energy policy was approved but was not adhered to given existing price distortions, costly and poorly targeted subsidies, governance and regulatory inefficiencies; (ii) price adjustments - unfortunately a condition that previous administrations (including the incumbent given Ayub's statement that electricity price would rise in his recent press conference) are quick to implement; (iii) professional audit firms be hired to conduct technical and financial audits to identify stock and flow of payables at all levels including PHPL; (iv) monitoring and enforcement payment compliance including checking theft (Ayub has claimed success in this area); (v) an electricity law to modernize governance of the sector and establish investigation systems and a fast track judicial mechanism to improve enforcement which has yet to be implemented; (vi) demand side management through pricing and other market-based instruments as well as conservation measures; (vii) supply side management reflective of an integrated energy policy minimizing the use of more expensive fuel inputs for generation as well as encourage private investment (PML-N's focus on generation would imply more focus on use of cheaper fuels for generation); (viii) Nepra's administrative capacity to be strengthened and reduce base tariff determination period from 8-10 months to less than 5 and more timely adjustments with more favourable court decisions; and (ix) new boards of directors (again political appointees) with a focus on corporatization and commercialization (not yet evident).