ISLAMABAD: The Asian Development Bank’s Independent Evaluation Department (IED) have pointed out that incomplete policies and timid reforms cannot fully address the underlying causes of circular debt and increase to the generation capacity will increase the burden of this debt flows in months ahead.The ADB’s IED in its report titled “Pakistan: ADB’s Support to Pakistan Energy Sector (2005–2017)” states that after over a decade of accumulating circular debt, the problem is far from being resolved and the debt is expected to continue increasing, despite attempts by the government assisted by its development partners, to contain it.It states that forthcoming additions to the generation capacity will increase circular debt flows, and, unless reforms are made, the only solution for the government will be to keep financing it through the Power Holding Company (PHPL), although the debt flows will keep coming.“The financial situation of the sector and the country is jeopardised by the circular debt problem, and it cannot be further ignored or delayed” it added.Together with the debt parked at PHPL, the circular debt stock has reached Rs1 trillion in FY-2018, equivalent to 3% of GDP. Continued and strong political support and guidance is essential if the government is to implement significant reforms. In the past, sudden changes of direction have negatively affected the progress of improvements and reforms.The government has cancelled a number of ADB investment programmes (e.g., the energy efficiency (Multi-tranche Financing Facility (MFF) and the renewable energy and reform programmes.“Some of these political decisions have slowed down or blocked reforms that were agreed previously and were included in the development plans. Considering the internal resistance for change within the power sector, significant reforms will never happen unless key decision makers at federal and provincial governments support the change. Strong political support for structural reforms is needed in order to stop circular debt flows and ensure the sustainability of the power sector,” the report stated.Neglecting integrated energy sector planning contributes to inefficient sector development. In Pakistan many of the solutions attempted were suboptimal and short-term in nature. Integrated energy planning across all subsectors and long-term planning for generation, transmission and distribution networks are all essential for the efficient development of the power sector. Instead, pressed to reduce loadshedding, as a short-term solution the government turned to the private sector to build power generation plants without appropriate planning.Adding oil-fired capacity and relieving system bottlenecks without looking at the overall long-term system needs have proved to be short-term solutions to a structural problem; they have pushed problems into the future and may have aggravated the situation further.Incomplete restructuring and unbundling of the vertically-integrated power utility Wapda prolongs reliance on government subsidies and bailouts to the power sector. The incomplete unbundling of the power sector has allowed corporatised SOEs (independent only in theory) to delay efficiency lessons, issues, and recommendations improvements because they benefit from government bail-outs and subsidies.Some regulatory and institutional changes have occurred, but the results are not yet apparent. For instance, it took 10 years for the amendment to the Nepra Act to pass since it was first proposed under the Accelerating Economic Transformation Programme (AETP).DISCOs continue to be coordinated through Pepco, which was officially dissolved in 2012. The appointment of key managers and directors, staff seniority lists, and general oversight is carried out by the Ministry of Energy and Pepco, with the companies having limited independence.Despite the recent decrease in tariff differential subsidies from FY-2013 to FY-2016 (Figure 10), subsidies to the power sector as budgeted for FY-2019 have increased by 30% over the previous year, rising to Rs149 billion ($1.2 billion), equivalent to 85% of the total government budget for subsidies, with food and agriculture sectors taking the remaining 15%. As shown in Table 8, tariff differential subsidies for DISCOs, K-Electric and the Balochistan tubewells increased by 82% from the revised FY-2018 to the current FY-2019 budget.Although the budgeted amount may be revised by the middle of the fiscal year, this substantial increase from the previous budget shows that the financial sustainability of the power sector is deteriorating rapidly. As of now, reforms supported by the Sustainable Energy Sector Reform Programme (and associated programmes) have not helped reduce subsidy requirements by the power sector.Pakistan has been ADB’s second largest borrower in the energy sector, after India, in terms of Board approvals with $7.76 billion approved from 2005 to 2017. The total committed amount was reduced to $6.2 billion due to unprocessed tranches of multi-tranche financing facilities (MFFs), loan cancellations, and budget adjustments. ADB supported the country’s energy sector through a multi-sectoral approach, including investments in transmission and distribution infrastructure, sector institutional and regulatory reforms, sovereign and non-sovereign financing in conventional 1 and renewable energy generation, and technical assistance (TA).In June 2017, ADB’s Board of Directors (BoD) requested IED to evaluate the performance of ADB’s support to the Pakistan energy sector over the previous decade, given the large size of the portfolio. The objective was to gain insights and lessons learned from past investments and guide ADB’s future involvement in Pakistan’s energy sector.In response, IED carried out this sector assistance performance evaluation to assess ADB’s support for Pakistan’s power sector since 2005 and to recommend how ADB can best continue supporting the sector. During the evaluation period (2005–2017), ADB’s Board of Directors approved 28 sovereign loans, 12 non-sovereign operations, and 10 TA projects.Consultations with the government by the end of 2018 have confirmed the findings, issues and recommendations offered by the report and key stakeholders expressed their commitment to address the bottlenecks holding back the sustainable development of the energy sector.
from The News International - National http://bit.ly/2BxoD0L
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