The Ministry of Energy in Pakistan has proposed an ambitious plan to transfer control of ten power distribution companies (DISCOs) to the provinces. The move is aimed at addressing the issue of bad governance, which is contributing to the country’s rising circular debt.
A position paper from the ministry was sent to Shehbaz Sharif, the prime minister, and four provinces, warning that if nothing is done, the circular debt, which has already reached Rs2.5 trillion, could rise to Rs3 trillion. The paper makes the case that transferring control of DISCOs to the provinces, where bill recovery has proven to be a constant problem, could result in better performance.
The revised Circular Debt Management Plan, which has already received cabinet approval, predicts that cutting the line losses of the ten companies will only slightly reduce circular debt.
The ministry has proposed handing over control of these “bleeding elephants” over a six-month period. However, until it is decided to end the uniform tariff policy, under which an honest consumer of Islamabad pays for theft in Sukkur and Karachi, the transfer of these entities to the provinces will not be able to resolve the issue.
The proposal to transfer management of two DISCOs, Hyderabad Electric Supply Company (HESCO) and Sukkur Electric Power Company, made by the government of Sindh is addressed by the proposed plan (SEPCO).
The previous fiscal year saw significant losses for both businesses, which aided in the growth of circular debt. However, because of the uniform tariff policy, which continues to be a major problem, the transfer of control will need the support of every province.
As part of negotiations for an IMF deal, the government has already agreed to recover an additional Rs325 billion from electricity consumers by raising prices. The energy ministry has issued a warning that the IMF’s plan to “fiscalize” losses in the power sector by merely raising prices will not be sufficient to stop the flow of circular debt.
Provinces are thought to be in a better position to improve recovery, stop the trend of electricity theft, and reduce line losses. But for the past seven years, the Power Division has struggled to settle the K-Electric sale dispute with Shanghai Electric Power and seal new contracts with K-Electric.
DISCO control is expected to be transferred to the provinces within 64 days as a result of technical consultations and data sharing. The next steps involve a meeting between the prime minister and chief ministers of provinces, a special meeting of the Council of Common Interests, and the signing of a memorandum of understanding with the provinces.