Nepra (National Electric Power Regulatory Authority) has released its annual State of Industry Report-21 (SOI-21). This publication is an authentic source of data and information and a must read for all the stakeholders according to their needs, interest and comprehension. SOI has reported 140 major cases and determinations indicating that Nepra has been quite busy during the outgoing year. SOI highlights a lot of issues which may not mean that it agrees and wants to implement most of them.
However, its mere discussion does indicate the recognition of those issues. Admittedly, all issues may not be under sole discretion and domain of Nepra, it is not clear up to what extent the electricity power regulator intends to take action in the areas which come under its domain directly. We will focus on a few selected issues and recommendations. This is a two-part series. We are dealing with performance issues in part-I; in part-II, regulatory and reform issues will be discussed.
Let us begin with some numbers to give a context to the discussion. The total installed generation capacity by 30th June, 2021 reached 39,722MW (dependable capacity 37,271MW), showing an increase of 1053MW over the previous years; out of this 20,820MW was in public sector and the rest in private sector, including KE. Thermal capacity remained at 25,098MW.
Total electricity generated in the outgoing period (2020-21) stood at 143,090.64 GWh including KE, an increase of 9363.44 GWh over the previous year. This represents a 7% increase. It is good news. It appears there is economic growth despite all kinds of problems like Covid-19, inflation, etc. The problem simultaneously is lack of adequate capacity utilization being one of the major causes of circular debt.
The SOI has pointed out the following issues:
The overload of Renewable Energy on Tariff and the solutions thereof;
Under-capacity utilization, load-shedding and circular debt
It is widely known and also indicated by SOI that there is a large gap between installed capacity and its actual utilization. Amazingly, on one side there is under-utilization and on the other there is load-shedding. Load-shedding is intentional for those consumers/grids where there is high electricity theft. It is better not to provide them electricity than not receiving any revenue. It is understandable.
The report points out bad O&M practices of DISCOs and transmission congestion. There are areas where there is higher demand, generation is available but transmission capacity is enough. Some way has to be found out to discourage this. Some punitive measures ought to be there. In Europe consumers are compensated for inconvenience and losses. NTDC has poor project planning and implementation and Discos’ poor O&M practices are to be blamed. Amazingly, SOI has avoided discussion on circular debt and the possible remedies that may be taken or what Nepra intends to do in this respect.
Bad performance of Discos, high losses and receivables
This is nothing new about bad performance of Discos. Nepra has been giving targets for T&D loss reductions and receivable collections. Except very marginal improvement in some DISCOs (which might as well be a measurement error) no improvement has been achieved. Disco aggregate T&D losses are stuck at 17.95% (author’s calculations, as SOI has provided only company level data).If one adds transmission losses of 2.78%, it totals to 20.73%. For a comparison sake, international averages are under 5% or so.
For complacency reasons, one may cite that India’s corresponding figures are even higher than those of Pakistan. This average hides consistent bad performers like PESCO (losses 38.18%), HESCO (38.5%), SEPCO (35.27%) and QESCO (27.9%). However, there are good performers as well like IESCO with the least losses of all at 8.54% and FESCO at 9.28%. KE losses have been going down continuously over the last seven years from 20.9% to present at 15.36%. The monetary value of losses stands at 91.5 billion rupees. Receivables have increased from 1375 billion Rs (2019-20) to Rs 1495 billion (2020-21). Some improvement has been reported in recovery ratio from 88.77% to 97.30% which amazingly is better than KE’s corresponding figures of recovery of 94.87%. It is hoped that there is no error in these numbers.
SOI appears to be unhappy with two systems in one country – the separate system of KE. The generation cost of KE is higher than elsewhere in the country. While there is generation surplus in the country, there is a deficit in KE due to a variety of reasons. CPPA-G has been providing 1100MW to KE to meet its deficit which has been undulating about 400-500MW despite supplies from CPPA-G. More can be provided if KE improves the inter-connection.
It was expected that the Discos would achieve the targets and avoid financial losses that accrue due to Nepra targets. It only caused deterioration in companies’ financial situations, preventing capex in facilities’ improvement. SOI suggests some long-term measures like unbundling, privatization and dividing large Discos into smaller ones as has been discussed over the years. GoP is supposed to take steps in this direction. Several approaches to privatization have been discussed.
The latest one is management contracts which may not involve financial and asset transfers involving NAB-type issues. Unbundling is a CTBCM (market mechanism) requirement. Discos can be divided through administrative orders which might perhaps be the easiest step. There has been a sense of trepidation and consequences under all options, reforms and actions. There are political and trade union issues as well.
A smart meter scheme has been pending for a long time now due to bad project design and capital intensity. In order to have full coverage, an investment of 7 billion USD and timeframe of 5-7 years may be required which may not be implementable. The project design focuses on the companies which have losses and ignores the Discos which have high losses. Under alternative design, one could install smart meters on distribution transformers which could help identify high loss areas and thus would help prioritize administrative action.
Smart meters at distribution transformers may perform extra DT monitoring and control activities.KE has adopted this system and has benefitted from it. Reportedly lender-vendor combine is allegedly blocking new approaches.
We would like to propose here that Nepra considers introducing Oil and Gas Regulatory Authority’s (Ogra’s) approach to UFG losses. Ogra has developed and implemented an incentive system which rewards improvements while the existing Nepra system is a punitive negative system. Good results have been obtained on the application of this scheme by Ogra. At least one gas company has been able to achieve a significant UFG loss reduction.
(The writer is former a Member Energy, Planning Commission and author of several books on energy sector)
Copyright Business Recorder, 2021
