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04 - 10 Aug, 2012
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ECONOMIC REVIEW
Reality Of Energy Crisis
Unless rampant pilferage is stopped and outstanding amounts recovered problem can't be resolved
by SHABBIR H. KAZMI

Reality Of Energy Crisis
Energy crisis in Pakistan is not only impairing its economic development but making lives of people miserable. Groups having vested interest are trying to complicate the issue, rather than providing a sustainable solution. Little is being said about the inefficient electricity distribution companies but the emphasis is on recovery of full cost. Various groups are talking about using alternate sources of energy, adding new generation capacities and even importing electricity from India and Iran but no effort is being made to operate existing power plants at optimum capacity utilization.
A lot is being talked and written about circular debt pertaining to energy sector. Surprisingly the government has also issued around Rs200 billion term finance certificates but the outstanding amount is still estimated around Rs500 billion. At least one point seems certain that the numbers being talked about are highly exaggerated. If one accepts, for the sake of argument that the numbers are correct, the other conclusion is that the entire energy sector is in the grip of manipulators who have been siphoning funds. While the outstanding debt is becoming backbreaking, certain quarters are the biggest beneficiaries.
This argument gets some credence when one reads two of the news published: 1) Ministry of Water and Power and Planning Commission suspecting furnace oil being used inefficiently and 2) Securities and Exchange Commission of Pakistan (SECP) initiating investigations agent independent power producers (IPPs) for some gross irregularities. It is for the first time that government functionaries are thinking beyond raising tariff. Both the points being raised need thorough investigation because of having the Reality Of Energy Crisispotential to bring down cost of generation, a point that was hardly talked about in the past.
To understand the real size of circular debt one point must be kept in mind that the amount just can't be worked out by adding receivables of the companies belonging to energy chain. This could be best understood if distribution companies pay Rs100 billion to oil and gas marketing companies, it would reduce the receivables of oil and gas marketing companies, refineries and exploration and production companies by the same amount or the entire amount would be reduced by Rs500 billion.
To facilitate the distribution companies, the government on their behalf can make the payment to fuel supplying companies and recover most of it by deducting at source the amount payable by government, semi government offices and state owned enterprises. It is true that some of the private sector entities are suffering from cash crunch but transferring the sickness of industrial sector to banks can prove detrimental. In fact the money does not belong to banks, they are only the custodian of depositors' money and all the efforts that can put these deposits at risk must be discouraged.
Let one point be very clear that power generation plants may be inefficient but the real culprits are distribution companies. Experts have been saying that if distribution companies dispatch 100 units, they get the payment for 30 units because 40 units are pilfered and 30 units add to receivable. Therefore, efforts must be made to contain pilferage and recover outstanding dues. Every consumer must pay for the electricity used by him/her as nothing comes free in this world. If one group of consumers doesn't pay others have to pay the cost.
Around the world the governments pay subsides and Pakistan should not be stopped from this. However, Reality Of Energy Crisisthe difference has to be borne by the government and not by the consumers. Till today, consumers have been bearing the burden and not the government. The much talked about payment of subsidy in a hoax call. The government collects billions of rupees as oil and gas levies and only a fraction of that is paid to generation companies.
Often KESC and listed companies are accused of inefficiencies, corruption and not following code of corporate governance, only because their published annual accounts are available. However, nothing adverse is said about electricity generation and distribution companies because their annual accounts are not made public. It is said that since these companies are not listed, making their annual accounts is not necessary. However, the proponents of this policy totally forget that in state owned companies taxpayers' amounts are invested. Therefore, every tax payer is stakeholder in these companies and has a right to know how efficiently or inefficiently his/her money has been used.
It is good to know that the SECP is investigating affairs of IPPs. However, it is necessary to point out the way Kot Addu Power Company (Kapco) is managed. WAPDA is still the major stakeholder in the company but completely fails to manage the unit efficiently. This power plant is based on low sulphur furnace oil and also has the alternative to run it on natural gas. However, at the time it operates at dismal capacity because the government, despite having extended sovereign guarantees could not supply low sulphur furnace oil or gas.
A question is often asked that investors know Pakistan needs to add up to 5000MW generation capacity to ensure uninterrupted supply of electricity at affordable cost but they are reluctant to invest. The reply is if the existing IPPs are not made timely payment, face intermittent closure of power plants due to non-availability of fuel, why should anyone be interested in investing in the country?
Private sector is also advised to stop complaining about shortage of electricity and gas in the country. They have to take bold steps that include: 1) establishing in-house power plants based on co-generation technology, 2) constructing IPPs and directly supplying to bulk consumers and 3) pooling resources for the construction of LNG terminal. However, all this require a commitment to pay for every unit consumed, which they have not been doing in letter and spirit, let everyone accept this fact.
It is also to be pointed out that pilferage of electricity goes on with the connivance employees of the distribution companies. The time has come to weed out the culprits. However, this requires commitment of the government. Over the years the successive governments have been state owned enterprises for providing jobs to political activists. They can still be provided jobs but will have to work like other employees.

 
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