Portfolio of Power Distribution Companies Declared Country’s Largest Financial Risk; Reducing Operational Losses Deemed Inevitable
ISLAMABAD: A detailed new study has described the list of Pakistan’s 11 electricity distribution companies (DISCOs) as the “biggest fiscal threat” to the economy, calling for a reduction in losses in their operations to ease the massive financial burden on the power sector.
The report reveals that during the first half of last year, DISCOs received Rs282bn in government subsidies. Even with such a huge financial push, the circular debt in the country rose by another Rs143 billion, indicating that if the systemic flaws were to be allowed to continue, the government might have to provide bailouts of up to Rs1,200 billion per year.
The Power Sector Financial Report highlights key points for the EEA.The Power Sector Financial Report serves as a key point of reference for the EEA.
Subsidies vs Circular Debt: The results indicated that providing subsidies to the power sector without making significant reforms in their operations does not solve the circular debt issue. The value of the circular debt can be brought down to Rs3,200 billion in optimist scenario, while in the worst case scenario, profits could turn to losses in the range of Rs140 billion to Rs170 billion.
The performance disparities between DISCOs are:
High Loss Entities: Quetta Electric Supply Company (QESCO) comes out as the most loss company with 55 paisas recovered per rupee spent, and incurring a loss of about Rs23 billion in a quarter. Other highly stressed units are HESCO, PESCO and SEPCO, the last of which was labelled “extremely precarious financial position”.
In comparison, the financial position of FESCO, HEC, MEPCO, GEPCO and IESCO are relatively stable as their cost recovery ratio stands from 1.01 to 1.06. There are only minor financial pressures on LESCO and TESCO.
Recommended Reforms: The report strongly recommends that cost-recovery ratios of distribution companies be improved to 0.95; the implementation of strict tariff structural reforms, which would save Rs15 billion per year; and the aggressive tackling of structural deficits in the struggling distribution companies.