Govt green-lights transfer of power distribution firms to provinces

• Power generation will remain with federal govt.
• Provincial govts will control XWDISCOs after transfer.
• Govt also eliminates uniform power tariffs.

ISLAMABAD: The federal caretaker setup is ready to work out a framework of operational, financial and structural policy matters related to former Water and Power Development Authority (Wapda) distribution companies — XWDISCOs — to ensure improved performance.

In this regard, the interim cabinet has greenlit the transfer of control of distribution companies to the provinces. The decision is being viewed as a crucial step towards restraining losses within the energy sector and addressing increasing power theft.

Caretaker Prime Minister Anwaar-ul-Haq Kakar chaired a meeting during which the decision was made, as per official sources. To receive the final nod, its policy draft will now be sent to the Council of Common Interests (CCI), after which the process to transfer 10 XWDISCOs with assets and financial autonomy to the respective provinces will begin.

Under the policy, electricity generation and transmission systems will remain under federal control, while provincial governments will assume authority over the XWDISCOs after the transfer.

This shift in ownership will empower provinces to determine subsidies for electricity tariffs and establish measures to combat theft and manage load-shedding schedules. The government has also taken the decision to eliminate uniform power tariffs that have hitherto been applied nationwide.

"The PDM [Pakistan Democratic Movement] government, headed by former prime minister Shehbaz Sharif, had carved out the policy in its last days, which the caretaker government will take up now for approval,” a senior energy ministry official told The News.

"Peshawar Electric Supply Company (PESCO) and Tribal Areas Electric Supply Company (TESCO) will be handed over to Khyber-Pakhtunkhwa, and the Islamabad authorities will have total control of IESCO. The process may take two to three years to complete,” added the official.

Punjab will be given control of four DISCOs — Lahore Electric Supply Company (LESCO), Gujranwala Electric Power Company (GEPCO), Faisalabad Electric Supply Company (FESCO) and Multan Electric Supply Company (MEPCO). Hyderabad Electric Supply Company (HESCO) and Sukkur Electric Supply Company (SEPCO) will be handed over to Sindh, and Quetta Electric Supply Company (QESCO) will be handed over to the Balochistan government.

Policy goals

Under the proposed policy, the distribution segment is the interface of the entire sector with the consumers of electricity. The financial viability of the entire sector is premised on the efficient operation of the distribution system and timely recoveries from the consumers.

The said policy recognises the deep-rooted and systemic problems in the power distribution sector as being the main cause of the accumulation of the circular debt and contains a number of operational, financial, and structural policy measures and objectives aimed at improving the performance of XWDISCOs.

These policy objectives, including the objective to privatise XWDISCOs, have remained constant in the previous power/electricity policies, approved by the CCI in 1998, 2002 and 2013, according to the official.

The policy draft mentions that the overall policy framework for the electricity sector would be determined at the CCI forum. To facilitate the transition, a comprehensive policy framework has been meticulously devised. This agreement will be signed between the central and provincial governments. It’s about how the transfer of control will work and the plan for it.

The provincial governments will have the autonomy to implement measures specific to their jurisdiction. This will allow them to address local challenges and promote sustainable and efficient electricity distribution.

The provincial governments will have the authority to oversee distribution companies within their respective jurisdiction and also through local administration. This will include monitoring operations, ensuring compliance with regulations, and addressing issues specific to the local context.

They will be responsible for implementing robust measures to deduct and prevent theft, such as conducting regular inspections, employing advanced metering systems, and strengthening law enforcement efforts to deduct illegal connections.

And more importantly, enhancing the recoveries of the outstanding dues is another vital aspect of the provincial government’s role. They will introduce strategies to improve revenue collections, including introducing an efficient billing system, addressing discrepancies, and implementing an effective debt recovery mechanism.

The provincial government will be interested in the task of infrastructure development and maintenance within distribution companies. This involves investing in modernising the distribution network, upgrading equipment, and ensuring regular maintenance to minimise technical losses.

And being closer to the customers, provincial governments will be responsible for ensuring quality consumer service and handling grievances. This includes addressing consumers’ complaints, establishing effective customer service mechanisms and promoting transparency in billing and metering processes.

The provincial governments will collaborate with the federal government, regulatory authorities, and other stakeholders to ensure effective coordination in the functioning of the electricity distribution system. This includes sharing information, aligning strategies, and collaborating on broader sectoral goals.

The success of provincial governments in managing DISCOs will depend on their capacity to effectively execute their responsibilities, allocate adequate resources and establish a transparent and accountable mechanism for governance and operations.

The policy also pinpoints the background of unbundling of WAPDA into distribution companies, generation companies, and one transmission companies to ultimately privatise XWDISCOs, but the governments in the past have failed to sell out the unbundled entities and now the government has proposed a plan to hand over XWDISCOs to provincial governments.

Circular debt

Interestingly, XWDISCOs faced substantial annual losses totalling Rs300 billion in the fiscal year 2022-23, a burden no longer tenable for the federal government.

The burgeoning circular debt within the power sector, currently at Rs2.6 trillion, predominantly results from electricity theft and inadequate bill recovery, compounded by other contributing factors. 

A Nepra evaluation report for the year 2021-22 highlights high transmission and distribution losses, notably with SEPCO at 36% and HESCO at 25.40%.

PESCO records the highest losses among DISCOs at 37.23%. In contrast, IESCO demonstrates efficiency with losses at 8.18%. GEPCO’s losses remain at 9.07%, LESCO’s at 11.50%, MEPCO’s at 14.70%, and K-Electric’s at 15.30%, collectively amounting to overall losses of 17%.

The fiscal year 2021-22 saw the national exchequer incurring substantial losses due to transmission and distribution inefficiencies, estimated at approximately Rs122.6 billion. Despite collecting Rs2,517 billion against a billed amount of Rs2,686 billion, a shortfall of roughly Rs170 billion was encountered, attributed to the circular debt escalation in Pakistan.

Chief contributors to this financial setback are QESCO, SEPCO, and HESCO, signifying that insufficient bill recovery significantly fuels Pakistan’s circular debt crisis.