ADB holds ministry, Nepra responsible for power woes

ISLAMABAD: The Asian Development Bank has held two major power sector stakeholders — the Ministry of Water and Power and the National Electric Power Regulatory Authority (Nepra) — responsible for most of the ills Pakistan’s power sector is facing today, including loadshedding, system losses and high tariffs.

This puts a serious question mark on the performance of the two public sector institutions designed and set up to solve electricity problems and remove consumers’ sufferings. They have been blamed for stalling or delaying reforms launched by the government more than two decades ago.

In its “Technical Assistance Completion Report” on creation of Central Power Purchasing Agency (CPPA), the ADB said there had been setbacks to its technical assistance because of lax attitude of Pakistan authorities; it provided another opportunity to the lender to sell another technical assistance for strengthening the regulatory regime.

Because of delays in obtaining internal approval within the government, several milestones, including the establishment of CPPA, could not be achieved. “There were significant delays encountered i.e. converting the market rules guidelines into formal statutes; the incorporation/registration of CPPA and finalisation of its budget; and the nomination of its chief executive officer and senior management. The CEO still remains to be appointed by government after nearly 18 months of its inception,” ADB’s principal energy specialist F.C. Kawawaki said on Monday.

“The weak capacity of Nepra to formulate market rules delayed the implementation process and the ADB was requested to process a follow-up technical assistance to help Nepra in developing market rules,” he added.

Since 1998, the government has been implementing a strategic power sector restructuring and unbundling plan to end the persistent power crisis through increased investments to address longstanding fiscal, technical and fiscal deficits.

The ADB report said that the reforms process had been slow and power supply and infrastructure requirements did not keep pace with the rising demand, thereby constraining growth potential and the country’s competitiveness.

“The current generation shortfall is close to 40 per cent of the installed capacity and coupled with the overstressed power infrastructure results in eight to 10 hours of forced power outages. The inter-circular debt to the tune of Rs250 billion, which is nearly 40 per cent of the sector’s annual revenues, accentuates the situation,” it said.

The CPPA is a key organisation to look after contractual obligation between the government and power producers and between the producers and purchasers.

Although the power sector in Pakistan is mature enough to graduate towards formation of an independent CPPA, “a lack of thrust in political will impeded its implementation in true spirit”. Although consultants have submitted deliverables within agreed timeframes, “the weak capacity of the executing agency and political will of the water and power ministry have stalled the full establishment and operations of the CPPA”.

The ADB said that a lot apparently had been contingent in resolving major structural, technical, fiscal and governance gaps and implementing reform agenda on the part of the government: Nepra’s capacity to initiate the policy reforms that could convert the guidelines on market rules for electricity trading into formal industry regulations and solve circular debt problems had been marginal.

It said the government was also not ready to institutionalise the CPPA model because of exogenous factors like severe power shortages and emergency of ballooning circular debt.

“The creation of an effective CPPA without addressing or restructuring the past financial and fiscal deficits of the sector as well as without providing adequate safety valves to avoid such future recurrences has not been an effective exercise,” the bank said, adding that prior to CPPA creation, the government should have laid emphasis on resolving systemic, structural and fiscal constraints in the sector that had led to circular debt.

On its part, the ADB has learnt the lesson that experiences in one market cannot be directly replicated into another. A thorough plan based on ground realities is critical for success of any new institutional arrangement, particularly of the already challenged power sector.

The report said the ADB should not allow its international consultants to avoid travelling to Pakistan on security excuses.