In the previous space, we focused on immediate financial restructuring solutions for enabling reduction in electricity tariff. In this space, we will briefly discuss other avenues mainly related to institutional, policy, technical, and management issues.
It should, however, be kept in mind that the recent rise in electricity tariff has been earlier due to increase in fuel cost and recently and now due to heavy rupee depreciation. There have been and continue to be similar problems in erstwhile successful countries like Sri Lanka and Bangladesh and elsewhere. This increases the urgency to eliminate waste and increase efficiency.
We discussed that capacity (fixed charges) have risen from 50% of the total electricity cost to 67-75%. One of the solutions, as discussed, is financial restructuring. The other solution is to increase utilization of electricity. Industrial sector offers such an opportunity.
Reducing rising electricity tariff?—II
While increase in industrial output is a general and larger requirement of increasing employment and growth, it can increase electricity consumption significantly. Tariff reduction is not possible to achieve this due to IMF (International Monetary Fund) reasons, other policy stimulation steps `would be required to achieve this.
Care has to be taken in adding more generation capacity to the system. IGCEP (Indicative Generation Capacity Expansion Plan) is based on high economic growth rates. Most forecasts do not show high growth up to medium term. IGCEP plans have to be toned down. Capacity without demand would exacerbate the high tariff problem.
Sun shines in the day and wind blows mostly in summers. Solar and wind are cheap 4 USc. There are variability and constancy issues. There is an upper limit in the system to absorb these with stability. However, there is scope for adding solar and wind in hybrid mode or otherwise with storage of 4-hrs where feasible. Roof top and distributed solar close to the demand may be an ideal solution.
Low and weak transmission links result in avoidance of economic dispatch order, increasing generation cost. Transmission capacity will have to be improved and enhanced along with improvement in performance of NTDC (National Transmission and Dispatch Company).
RFO is expensive but available locally. It is being exported now. RFO is deregulated causing mismatch and over-pricing problems. Recently, it has been exported at 70 USD per barrel much lower than the price it is sold at in the local power market. Right pricing may help both local producers and the power sector.
Ultimate efficiency comes out of competitive market and private ownership. Privatization has been a cherished goal of successive governments, but it has not happened. For competitive markets, CTBCM (Competitive Trading Bilateral Contract Market) has been launched without any success.
As per NEPRA (National Electric Power Regulatory Authority) chairman himself, a pile of reports 6 feet high has been produced. Even wheeling charge issue could not be resolved. Basic issue remains as to how will the contracted IPPs (independent power producers) will be brought into the system.
Reducing rising electricity tariff?-I
There are possible solutions in this respect, but no attention has been paid to it. All contracts are bilateral but bilateral contracting without a spot market may open the doors of corruption and collusion. Often Turkish model has been cited, which also has a spot market. India has a spot market. CTBCM-based bilateral contracting does not seem to have large entry potential either. There is a need to have a third party review to search new approaches for creating a competitive regime.
DISCOs have T&D losses and receivable issues. Corruption and leakages are additional but main issues cause increase in production cost. PESCO, HESCO, SEPCO and MEPCO are major problem companies. One of the problems is the large organization size and geographical coverage; MEPCO and PESCO are major examples.
Division of these companies into smaller units has been considered earlier but not implemented. PESCO had been divided into two units earlier and a new initiative has been taken recently. Similarly, MEPCO may have to be divided in two units. In the case of LESCO, industrial, commercial and large consumer section may be considered for separation and organization as a company.
Discos in Sindh in general and KP in particular suffer from law and order problems. Transformers are removed and installed by private parties forcibly and DISCO management cannot do anything about, a former M.D. Pesco narrated his horror stories. Law and order agencies are under provincial control. Provincial governments have no stakes in the losses.
They have political interests and compulsion. Powerful people and groups are involved. With rise in tariff, the incentives for theft would increase even more. Provincial governments have to share the losses (may be 50-50), after all the losses are caused by the local populace.
On the other hand, the Sindh government has been expressing interest in provincializing DISCOs in its domain. Skepticism has been shown in the ability of the Sindh government to manage these companies. Provincial governments are more susceptible to local power elites and toughs. A reduction of federal losses will cause reduction in tariff.
There are technical solutions as well. Smart metering at consumer level has been deemed to be costly (7 billion USD) and time taking (5-7years). There would be no money available for this kind of gigantic activity. However, a cheaper solution is installing smart meters and controls at DT Transformer level, which may take lesser time and money (under 500 million USD).
KE has done it and has reportedly achieved improvements. Poor maintenance and overloading of transformers has been cited to be a major source of additional cost and losses. A significant reduction in tariff can be achieved through technical improvement such as this. Insulated distribution cables may also reduce theft chances and cause tariff reduction. KE has achieved major success in this area.
A technical organization had been planned to work on the technical issues and problems of DISCOs and may be GENCOs’. Such organizations exist in most countries, including in our region (CEA India). There are common issues, which need be considered in totality. It is high time that a central technical organization employing qualified staff is established without losing time. Induction can be made from within existing organizations or/and from outside.
Finally, a firm policy and a firm hand are required to deal with the vices prevailing in the electricity system. Without weeding out corruption and inefficiency much cannot be achieved. DISCO management has to deal with corruption from within and the governments, federal and provincial, have to improve the law and order situation in DISCO areas to weed out the influence of local toughs and powerful elite who steal and do not pay.
Copyright Business Recorder, 2023
