NEPRA Chairman Stresses Deregulation, Demands Reduction in Electricity Tariff

Electricity demand, which has tanked due to industrial slowdown, may never go back to pre-COVID-19 levels, and recovery will not be visible before 2022, said Zubair Mahmood, Lead Policy at the Central Power Purchasing Agency (CPPA-G), while speaking at a webinar on the “Impact of COVID-19 on the Electricity Distribution Sector in Pakistan and the Way Forward”.

He said that Pakistan has already witnessed a 6-7% reduction in electricity demand over the past three months predicting that this could further reduce by 15% before reversal.

During his presentation, Zubair Mahmood also estimated that the impact on the power sector has been approximately Rs. 40 billion in just 3 months, only on account of the shift in energy demand from profitable customers (like industries) towards less profitable segments:

On one side it is squeezing the profitable categories and on the other side, it is enhancing the loss-making categories. From both sides, the power sector is in a very tight situation. Until the time the financial gap is bridged by injection from the Government of Pakistan, there will be a financial crunch for the power sector which will (…) affect the delivery of services to the customer.

The webinar was organized by Women in Energy Pakistan (WIE), a professional network for female professionals in the energy sector of Pakistan, and a strategic partner of the World Bank’s WePOWER regional network. It discussed the impact of the global pandemic on the electricity distribution sector in Pakistan, and solutions to ensure sectoral sustainability during and after COVID-19.

It gathered a distinguished panel of notable minds from the Pakistan power sector including Chairman NEPRA Tauseef Farooqi, CMCO K-Electric Mahreen Khan, Lead Policy CPPA-G Zubair Mahmood as well as international energy experts such as Saadia Qayyum, Energy Specialist at World Bank and Chair at Women in Energy and Anthony Granville Senior Energy Expert at the World Bank, and was moderated by Seher Abbas Haider, Energy Consultant at International Finance Corporation (IFC) and Chair at Women in Energy.

Chairman of the National Electric Power Regulatory Authority (NEPRA) Tauseef Farooqi said that reducing the cost of power is critical in any effort to limit the impact of the current crisis and suggested that increasing competition in the sector while doing away with centralized governance is the best way forward.

He said,

As a regulator, I want this sector deregulated as much as possible. Any recovery will only be built around fixing the economy and industrial recovery is a central pillar in this recovery, which can only be possible by reducing the cost of doing business by reducing the cost of power.” During this crisis, everyone also has to fulfill their civic duty of paying their bills. Otherwise we cannot bring down the losses and cost of power.

Mahreen Khan, Chief Marketing and Communications Officer (CMCO) for K-Electric stressed the need to address the cash flow impact of COVID-19 on utilities.

People cannot live without utilities. This is not a segment that you can simply afford to have impacted negatively and government intervention is necessary to ensure people continue to have access to this vital service.

She outlined the financial impact of COVID-19 on K-Electric, which has seen a 75% dip in demand from the commercial segment, a 55% dip from the industrial segment while residential demand has risen by 25%.

This is because we maintained a zero load-shed regime to contribute to the success of the lockdown, providing uninterrupted power to areas with over 80% power theft. Due to COVID-19, K-Electric’s recoveries have reduced to a level of 55-65% in the commercial and residential segment and are also dented by relaxations such as bill installments and the deferral of ISPA. Khan stressed on the role of the regulator to ensure sectoral sustainability by supporting the working capital requirements of utilities.

Khan praised government measures to subsidize prepaid electricity to SMEs but said more should be done for the residential segment, which would have a tougher time in meeting their payment obligations because of unemployment and lower disposable income.

Chairman NEPRA, while agreeing with Khan’s points regarding the need to limit the damage to utilities said that presently the government had deferred all tariff adjustments due to various DISCOs, admitting that these could potentially affect the financial sustainability of the power utilities.

Seher Abbas Haider, Energy Consultant at IFC and Chair at Women in Energy suggested that the concept of prepaid power as a possible solution to power theft by ensuring that people can only use the power they have already paid for was welcomed by the other panelists.

Saadia Qayyum spoke about the unsustainability of the current subsidy model and how it disproportionately benefitted the wealthy, while the deserving segment of the population got only a fraction of the subsidy. She pointed out how this has put an unnecessary burden on the government’s limited fiscal space and on the industrial and commercial consumers who are cross-subsidizing domestic and agriculture consumers resulting in one of the highest industrial tariffs in the region. Saadia emphasized that now more than ever, the government needed to think of innovative ways of retargeting these subsidies.

She also spoke about what other governments/regulators are doing and how Pakistan should try and emulate some such measures. Some of the measures she highlighted were; providing relief to consumers through reduced tariff in Indonesian and Thailand; giving incentives to consumers to pay their bills on time such as in Delhi, 1% reduction in tariff if the bill is paid in the first week of issuance; along with relaxing regulatory compliance requirements. Further in India, the regulator has reduced LPS payments by DISCOs from 18% to 12% to provide some cash flow relief.

Anthony Granville spoke about the need for utilities to innovate and automate as technology has emerged as a winner in the current pandemic. He mentioned various technologies such as distribution automation system and smart meters that can be deployed by utilities in the country to cut down losses and improve their operational efficiency.

However, he said that the regulator needed to give the utilities a necessary space for innovation. Anthony also said that Pakistan should increase the use of renewable energy and battery storage systems for bringing down the basket cost of power.

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