US experts detect mismanagement in power firms

Posted on June 15, 2011. Filed under: Energy crisis |

The auditors from the United States have found Pakistan’s power sector operations far from international best practices because of governance issues, political influence, mismanagement and lack of business-oriented operations of the public sector power companies.

This has been revealed after involvement of about a dozen foreign consultants, hired jointly by the Ministry of Water and Power and USAID.

Most of the experts under the umbrella of International Resource Group (IRG) consultants remained posted in the power ministry for more than a year now and were engaged with distribution companies of Wapda at field level under Power Distribution Improvement Plan.

Submitted to the transition team, led by the Deputy Chairman, Planning Commission, Dr Nadeem Ul Haque, the IRG consultants said power companies were created in place of Area Electricity Boards (AEBs) of Wapda to ensure a transition from a public sector dominated to a fully independent electricity market in 1998 but that “transition is yet to become reality even after 12 years.” “The biggest challenge to the power sector is the increasing burden of fossilbased power generation at high cost.

Past policy decisions, intentional or otherwise, established natural gas with fuel oil backup as the primary power generation fuels. The failure to develop additional gas resources has increased the use of the fuel oil component of the mix, and a decision by the government to protect consumers from the full cost of oil generated power has resulted in an immense subsidy burden on the government.” It said the financing the subsidy was left partially to the Discos with the result that a huge (over Rs300 billion) circular debt has been created.

“The continued adherence to building social objectives in the tariff design, huge wastes and inefficiencies, customer non-cooperation, lack of resources for system rehabilitation and expansion, and lack of a well designed and customer friendly renewable and demand side management programme is crippling the power sector as a whole,” it said. Major changes are needed to make the power sector healthy again.

Calling for operating Discos totally independently on business principles, the report said it was not possible to completely prohibit political impact on the governance and operations but political influence needs to be minimised to allow these companies to behave as profit-making public service corporations.

It said the government should immediately recover full cost of electricity because the political sensitivity to application of full cost of service tariffs has led several Discos to show negative financial results.

“Recent increases in tariffs have resulted in limited improvement in the cash flow of some Discos.” Application of true cost of service, making profits for reinvestment, and better employee and customer care remain among the principal challenges of the Discos, the USAID said.

Due in part to under-recovery of revenues, Discos have failed to invest in distribution system upgrades, and suffer from overloaded and deteriorating feeders and distribution transformers, inadequate metering and outdated technology. Preparation of expansion and rehabilitation projects by Disco engineering departments is undertaken on an ad hoc basis, rather than as part of an integrated, annual planning process.

It said the organisational structure of the Discos was not conducive to smooth and effective utility operations to address inefficiencies. “Bringing the Disco’s organisational and staffing structure in line with efficient and effective private sector utili ties will be a great challenge.” The report said the system losses in Pakistan were way higher than international standards which could be attributed to old and worn out energy meters, lengthy lines, and service drops, especially in the congested areas with exposed lines tempting illegal tapping ie “kunda’ connections.

Concerns were also expressed over the quality of electronic meters, especially the time of use (TOU) meters, whose display often goes off because of poor quality batteries used within the meter which cannot be replaced by the local staff.

The project engineering team observed poor installation of energy meters, vulnerable to meter tampering and energy theft.

Terminal covers over the connections have always been a weak area for energy meters that were vulnerable to the most basic forms of tampering.

“The installation and the health of energy meters being used in the field were deplorable,” it said. There were a number of meters housed in steel box with open terminal covers that cannot be considered secure, or even safe for the general public in spite of the fact that these were in service. The audit team “failed to understand as to how these meters were being read without any reference number or even visible register.”


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