Pakistan attributes $8.9 bln circular debt, inflated bills to ‘poor governance’ in distribution firms

A youth walks on a wall while searching for drinking water in Rawalpindi on July 8, 2020. (AFP/File)
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Updated 03 February 2024

Pakistan attributes $8.9 bln circular debt, inflated bills to ‘poor governance’ in distribution firms

  • NEPRA says governance issues significantly contributed to circular debt, with no signs of reduction
  • The power regulator calls for structural overhaul of distribution companies, end of cross-subsidies

KARACHI: Pakistan’s National Electric Power Regulatory Authority (NEPRA) has blamed the surging circular debt, which has ballooned to approximately Rs2.3 trillion ($8.9 billion), and inflated electricity bills on “poor governance” within power distribution companies (DISCOs).

Pakistan’s power sector has been grappling with several challenges, including the growing circular debt, increasing cost of electricity, inefficiencies in the generation, transmission, distribution and supply segments, fuel supply issues, under-utilization of efficient plants, and governance and compliance.

Governance issues have significantly contributed to the mounting circular debt, which has now reached a staggering Rs2.3 trillion, as of June 2023, showing no signs of reduction, according to a NEPRA annual report released on Friday. The primary issues facing 10 DISCOs in the country include low bill recovery and high losses due to theft.

The power sector faced these persistent challenges as DISCOs stood at a critical juncture and struggled with the pervasive issue of old infrastructure, coupled with “poor governance,” the regulator said in its 2022-23 report.

“The mounting receivables of the DISCOs have been a major concern highlighted by the Authority over the past several years, receivables for DISCOs surged to approximately Rs 1,727,104 million ($6 billion), compared to Rs1,530,500 million ($5.3 billion) in FY 2021- 22, indicating an increase of Rs196,605 million,” the NEPRA report read.

“It is believed that DISCOs’ performance can significantly improve with the involvement of private sector. Therefore, concerted efforts are required in this direction.”

In Pakistan, the government administers the effective uniform tariff that companies charge their consumers and compensates the DISCOs for the difference, commonly known as Tariff Differential Subsidy (TDS).

Companies with lower regulated tariffs than the notified ones are not permitted to pass on the benefits of the lower tariff to their consumers. Instead, they levy a Tariff Rationalizing Surcharge (TRS) on their consumers to align it. Consequently, consumers of relatively efficient DISCOs subsidize those of less efficient DISCOs.

“The practice of cross-subsidization, where consumers of efficient DISCOs bear the financial burden of underperforming counterparts, inadvertently undermines efficiency and unintentionally fosters inefficiencies,” NEPRA said, recommending “urgent rectification” of the practice which it said must be discouraged.

The lack of oversight and accountability mechanisms within DISCOs led to mismanagement and corruption, further eroding the sector’s efficiency, viability and credibility.

“The performance-based robust human resource system is required to be developed and deployed in DISCOs to improve their performance,” the report read.

The authority stressed that “poor governance in DISCOs” needed to be curbed imperatively for sustained growth and financial viability of Pakistan’s power sector.

“Effective implementation of regulatory frameworks and robust oversight is crucial to improve governance in DISCOs,” it said. “Investment in human resource development and encouraging a culture of accountability can be instrumental to bring a positive shift in the performance of these companies.”

By tackling the governance issues, NEPRA said, Pakistan could pave the way for an efficient, transparent, and consumer-centric electric power sector, ultimately benefiting both the industry and the citizens alike.

High cost of electricity in Pakistan has emerged as a critical challenge affecting all segments of the society, ranging from domestic consumers to industrial and agricultural sectors.

Amid historically high inflation in the country, the extra ordinary increase in the price of electricity had badly disrupted life of an ordinary man, NEPRA acknowledged.

This price escalation emanated primarily due to increase in the prices of essential primary energy resources such as coal, oil and gas in the international market and drastic devaluation of Pakistani currency, which intensified financial strain on the power sector and consumers.

During the fiscal year 2022-23, thermal generation, including imported fuels, accounted for around 62 percent of the total generation capacity. Generation cost, around 83 percent, was the predominant factor, affecting per unit electricity price. Even a minor change in generation cost impacted the overall consumer-end tariff, according to the report.

A significant contributor to high electricity costs was the operation of old, less efficient plants in both public and private sectors. Many public sector plants, built in the early 1980s, exhibit efficiency as low as around 30 percent or lesser, and have become economically unviable and therefore need to be retired immediately.

Pakistan, Saudi Arabia and Uzbekistan ink ‘landmark’ agreement to promote trade, investment

Updated 16 sec ago

Pakistan, Saudi Arabia and Uzbekistan ink ‘landmark’ agreement to promote trade, investment

  • As per agreement, Uzbekistan’s largest bank and a Pakistani firm will support investors in all three countries
  • Partnership to attract foreign investment particularly in key sectors of energy, infrastructure and agriculture

ISLAMABAD: Pakistan, Saudi Arabia and Uzbekistan have signed a “landmark” partnership agreement to boost economic cooperation and create new opportunities for investors in the region, Pakistan’s state-run television reported on Tuesday.

As per the terms of the agreement, Uzbekistan’s largest bank Ansher Capital will work closely with KASB Securities Limited (KASB), a leading Pakistani stock and commodity brokerage firm, to provide financial advisory and corporate finance services to investors in all three countries, the state media said. 

Both firms will support investors and traders in Pakistan, Uzbekistan and Saudi Arabia by providing expert guidance on navigating financial markets, the Pakistan Television (PTV) said. 

“In a significant development, Uzbekistan, Pakistan, and Saudi Arabia have signed a landmark partnership agreement aimed at promoting investment and trade between the three countries,” PTV said. 

“The partnership is expected to expand the market and attract foreign investment, particularly in key sectors such as energy, infrastructure, and agriculture.”

The report said that the agreement is also expected to strengthen trade ties between the three countries, with a focus on increasing trade volumes and promoting economic integration. 

“The partnership will enable businesses to tap into new markets and access new investment opportunities, creating jobs and driving economic growth,” PTV said.

Pakistan and Saudi Arabia enjoy strong trade, defense and cultural ties. The Kingdom is home to over 2.7 million Pakistani expatriates and serves as the top destination for remittances to the cash-strapped South Asian country.

Saudi Foreign Minister Prince Faisal bin Farhan arrived in Pakistan last week for a two-day visit aimed at strengthening bilateral economic cooperation and pushing forward previously agreed investment deals. Pakistan has said it pitched investment projects worth $30 billion to Riyadh during Prince Faisal’s visit.

Islamabad has sought trade and economic partnerships with bilateral partners and allies as it seeks to navigate a macroeconomic crisis that has seen its reserves plummet to historic lows and its currency weaken significantly. 

Pakistan’s finance minister says new IMF loan agreement targeted for early July

Updated 15 min 40 sec ago

Pakistan’s finance minister says new IMF loan agreement targeted for early July

  • The quantum and duration of new loan is still not clear, though the government wants at least a three-year program
  • Muhammad Aurangzeb says the modalities of the new loan will be thrashed out with an IMF delegation next month

ISLAMABAD: Pakistan’s finance minister Muhammad Aurangzeb said on Tuesday the country planned to discuss the contours of a new loan program with an International Monetary Fund (IMF) delegation next month while hoping to reach a staff-level agreement with the global lender by early July.

Pakistan secured a $3 billion IMF bailout last year to avert a sovereign default and hopes to receive the final tranche later this month. However, the government wants a fresh IMF loan since the country continues to face tough economic challenges and plans to implement structural reforms.

“We are still hoping that we can get into a staff-level agreement by the time June is done or early July so that we can move on,” the finance minister said while addressing a news conference.

He informed he had had good discussions with IMF and World Bank officials during the spring meetings held by both international lending organizations in Washington.

Aurangzeb maintained it was not right to say that the IMF was imposing strict conditions on Pakistan since the country needed to carry out reforms on its own to strengthen its economy.

“This is Pakistan’s program which is helped, supported, assisted by the fund,” he said. “This is how we have to see it since this is the way ownership will come.”

He said the quantum and duration of the new IMF program was yet not clear, though the government wanted to secure at least a three-year loan package.

Both sides have said they were already in discussions for the new loan.

A formal request, however, will be made once the current facility expires, with the IMF board likely to meet late this month to approve the second and last tranche of the current support scheme.

The economy is expected to grow by 2.6 percent in the fiscal year 2024, the finance minister said, adding that the inflation was projected at 24 percent, down from 29.2 percent in fiscal 2023.

It touched a record high of 38 percent last May.

Aurangzeb said structural reforms would include increasing the government’s tax revenue-to-GDP ratio to 13 percent to 14 percent in the next two or three years from the current level of around 9 percent, reducing losses of state-owned enterprises through their privatization, and better management of the debt-laden energy sector.

With input from Reuters

Pakistan refiners warn $6 bln upgrades at risk due to fuel price deregulation plan

Updated 23 April 2024

Pakistan refiners warn $6 bln upgrades at risk due to fuel price deregulation plan

  • Regulatory authority proposes oil marketers, refineries be allowed to set prices instead of government 
  • Refiners demand they be consulted before the implementation of “irrational recommendations”

KARACHI: Pakistan’s plans to deregulate fuel prices could lead refiners to halt planned upgrades worth up to $6 billion and force some refineries to close, some of the country’s top refiners said in a letter to the country’s oil regulator.

Looking to drive down prices for consumers, the South Asian nation’s Oil & Gas Regulatory Authority (OGRA) has proposed that oil marketers and refineries be allowed to set fuel prices, instead of the government setting prices.

As part of the change, OGRA proposed scrapping or reviewing a rule that requires fuel buyers to purchase supply from local refineries, another issue the refiners said could result in “disastrous consequences.”

The refiners — state-run Pakistan Refinery and private domestic refiners Pak Arab Refinery, Attock Refinery, Cinergyco, and National Refinery — said they were already struggling to operate near full capacity and asked that they be consulted before the implementation of “irrational recommendations.”

“The refining sector requires OGRA support through pragmatic and supportive measures, rather than suggesting ways that if implemented would result in their permanent closure,” the refiners told OGRA on Monday in a letter, which was reviewed by Reuters.

The deregulation was aimed at boosting competition and protecting the public interest, OGRA told Reuters in a statement on Tuesday, but did not respond to specific questions on the letter from the refiners. However, it said in an April 17 presentation reviewed by Reuters the potential impact of deregulation on refinery upgrades had to be assessed carefully, calling it a challenge.

“The refineries upgradation will bring in investment of $5 — 6 billion and not only result in cleaner environment friendly fuels but also result in savings of precious foreign exchange of the country,” the refiners wrote in the letter to OGRA.

Pakistan hopes to get new IMF loan by early July, says finance minister

Updated 23 April 2024

Pakistan hopes to get new IMF loan by early July, says finance minister

  • Pakistan’s current $3 billion financial arrangement with IMF expires in late April
  • Islamabad is seeking “bigger,” long-term loan to ensure macroeconomic stability

Pakistan is hoping to reach a staff-level agreement with the International Monetary Fund by June or early July, its finance minister said on Tuesday.

The country’s current $3 billion arrangement with the fund runs out in late-April, which it secured last summer to avert a sovereign default.

Islamabad is seeking a long-term bigger loan to help bring permanence to macroeconomic stability as well as an umbrella under which the country can execute structural reforms.

“We are still hoping that we get a staff-level agreement by June or early July,” Finance Minister Muhammad Aurangzeb told a conference in Islamabad.

He returned from Washington last week after leading a team to attend the IMF and World Bank’s spring meetings. “We had very good discussions in Washington,” he said.

He said he did not know at this stage the volume and tenure of the longer program.

Pakistan ‘rarely’ punished officials for rights abuses in 2023— State Department report

Updated 23 April 2024

Pakistan ‘rarely’ punished officials for rights abuses in 2023— State Department report

  • US State Department releases annual “Country Reports on Human Rights Practices” for the year 2023
  • Report says Pakistan witnessed extrajudicial killings, torture and restrictions on media freedoms last year

ISLAMABAD: Pakistan’s government “rarely” took steps to identify and punish officials who may have been involved in rights abuses in 2023, a report released by the US State Department said on Tuesday, pointing out incidents of extrajudicial killings, torture, enforced disappearances, violence against journalists and restrictions on media freedom had taken place in the country last year. 

US Department of State released its annual “Country Reports on Human Rights Practices” to highlight rights issues in several countries, including Pakistan. In the report, Washington identified that Pakistan last year witnessed arbitrary killings, extrajudicial killings, enforced disappearance, torture and “cases of cruel, inhuman, or degrading treatment or punishment by the government or its agents.”

“The government rarely took credible steps to identify and punish officials who may have committed human rights abuses,” the report said. 

Cases of “enforced disappearances” of citizens have long plagued Pakistan, where militants have waged a war against the state for decades. Families say people picked up by security forces often disappear for years, and are sometimes found dead, with no official explanation. Pakistani security agencies deny involvement in such disappearances.

The report also pointed out that last year Pakistan had seen incidents of restrictions on freedom of expression and media freedom, violence against journalists, unjustified arrests, disappearances of journalists, censorship and criminal defamation laws. 

Pakistan’s recent actions to restrict Internet and mobile services throughout the country, especially on days when elections are held, have invited criticism from rights organizations and Washington. The interior ministry last week confirmed it had banned social media platform X in February to protect national security, maintain public order, and preserve the country’s “integrity.”

The State Department report further pointed out that rights issues in Pakistan during 2023 included extensive gender-based violence, including domestic or intimate partner violence, sexual violence, early, child and forced marriages. It said Pakistan had also reported incidents of female genital mutilation and crimes involving violence or threats of violence targeting members of religious, racial and ethnic minorities. 

The report added that violence, abuse and social and religious intolerance by militant organizations and other non-state actors, both local and foreign, contributed to a culture of lawlessness in the country. 

“Terrorist and cross-border militant attacks against civilians, soldiers, and police caused hundreds of casualties,” the report noted, crediting Pakistan’s military, police and other law enforcement agencies for carrying out “significant campaigns” against militants last year. 

The South Asian country has seen an uptick in violence, mainly suicide attacks, since November 2022 when a fragile truce between militants and the state broke down. Pakistan has since then carried out military operations against the Pakistani Taliban or the Tehreek-e-Taliban Pakistan (TTP) and a Baloch separatist militant organization, the Balochistan Liberation Army (BLA) in the country’s two western provinces that border Afghanistan.