Nepra Power Purchase Agreement

These inefficiencies and other inefficiencies of state-owned enterprises in the energy sector, as well as the effects of poor governance, have exacerbated electricity generation and distribution costs, which are ultimately passed on to consumers via Nepra. Inefficiencies and losses that cannot be recovered by rate increases will be added to circulatory debts. The energy sector urgently needs policy, governance and pricing reforms. These efforts should focus on eliminating inefficiencies and losses in the energy sector, not on witch-hunting against private producers. But this should not prevent IPPs from playing their part and making adjustments to their agreements to help the government reduce electricity prices for consumers who are struggling due to the economic downturn and job loss in these times. The regulator called for sound governance reforms in the energy sector to make them efficient and reduce production, transport and distribution costs. It also advised the government to deregulate and decentralize decision-making powers to improve the performance of public distributors and prosecute them by privatizing them. The report rightly raised questions about the use of inefficient public power plants instead of using efficient production capacity and points out that the centralized governance model has failed to significantly improve distributor performance over a period of more than 15 years. Businesses must continue to expect distribution losses due to theft, corruption and the lack of investment in a broken transmission and distribution network. The previous government had included more than 12,000 MW in the system to stop rolling failures, but it did not invest in the distribution system. In this case, distributors are not able to fully recover their bills, resulting in a significant increase in the amount not recovered to R1.1 or more than half of the county`s current debt.

The report on the state of the industry for 2019, published by Nepra, the regulator, has put the focus back on the real problems that are pulling the energy sector down. The recently released IPPs report shifted the direction of debate on issues tormenting the energy sector to the validity of power purchase contracts with private generators, as well as “overpayments” to the detriment of unhappy consumers and the accumulation of massive circular debt. It can even be said that agreements with private heat producers since 1994 would have been less generous to investors and more favourable to the state and consumers if they had been negotiated properly. Nevertheless, it is misleading to blame IPPs for the chaos in the energy sector. Capacity payments and other IPPs costs may have contributed to higher electricity prices for consumers and huge circulatory debt, but governance and other issues raised by the regulator are the real cause of energy distress.