Pakistan’s power sector has been plagued by the persistent challenge of circular debt, which has worsened over time across subsequent governments. As of March 2023, the circular debt has accumulated to PKR 2.65 trillion, a staggering increase from PKR 450 billion in 2013 (NEPRA, 2023). This has resulted in frequent power outages, intermittent electricity cuts, rampant theft, and escalating energy costs.
The Root Causes of Circular Debt
Circular debt refers to the accumulation of liabilities that power distribution companies (DISCOs) owe to the Central Power Purchasing Authority-Guarantee (CPPA-G), resulting in delayed payments to power generation companies (GENCOs). Its accumulation can be attributed to three primary factors: inadequate tariffs charged to end-consumers, difficulties in recovering dues from consumers and widespread electricity theft, and high transmission and distribution (T&D) losses.
The Benefits of Smart Meters
Smart grid and metering technology can help address these issues by:
– Enabling accurate measurement of electricity consumption
– Detecting theft and tampering
– Facilitating timely billing and payment collection
– Providing real-time data for grid management and optimization
– Enabling remote meter reading and disconnect/reconnect capabilities
– Supporting demand response and load management programs
– Enhancing consumer engagement and education
Pre-Paid Electricity Meters: A Solution to Circular Debt?
Pre-paid meters work on a debit basis, where customers are required to buy electricity before they consume it. This resolves the issue of delayed payments as the utility receives money even before the use of electricity. Consumers can purchase electricity tokens from assigned centers or use mobile phone applications.
Success Stories from Around the World
Many countries have successfully introduced pre-paid meters, including Turkey, India, South Africa, and many European countries. Studies show that the switch from post-paid meters to pre-paid meters has led to a decrease in the demand and theft of electricity in Africa. Similarly, a research study conducted by the National Bureau of Economic Research, USA, revealed that switching from postpaid meters to prepaid meters reduced electricity usage by 13% in South Africa.
Pakistan’s Experience with Smart Meters
In recent years, several independent development agencies in Pakistan, including UKAID and USAID, as well as private organizations such as Jazz and FINCA, have partnered with DISCOs to enhance energy distribution system efficiency and reduce waste. Lahore Electricity Supply Company (LESCO), in collaboration with USAID, piloted an initiative to combat tampering and theft by replacing outdated electricity meters with smart meters.
The Way Forward
Embracing smart metering systems is likely to be a crucial step for reducing the burden of circular debt and moving towards a more efficient, secure, and reliable electricity supply for consumers in Pakistan. The government’s commitment to funding the installation of smart meters and transformer monitoring systems is a positive step towards addressing the challenge of circular debt. However, it is essential to address the high costs associated with the installation of pre-paid meters by inviting foreign firms to develop pre-paid meters in Pakistan.
The introduction of smart meters and grid systems, particularly pre-paid electricity meters, can play a vital role in addressing the circular debt crisis in Pakistan’s power sector. By preventing electricity theft, improving payment mechanisms, managing consumption, reducing demand, and enhancing consumer engagement, pre-paid meters can help reduce the burden of circular debt. Coupled with power sector reforms to address inadequate generation capacity, severe shortage of supply, and low efficiency of operations, this could be a major step towards solving the circular debt crisis in Pakistan’s power sector.
