Power sector: What went wrong?

It was way back in 1958 that Wapda was established in Lahore to electrify the rural and urban areas, stretching from one end of the country to the other, except Karachi which was electrified by Karachi Electric Supply Company (KESC) - the first IPP in the region established in 1914 and nationalised by the government in 1952 to ensure its rapid expansion.

Wapda in its early years performed exceptionally well in setting up mega hydro projects like Mangla and Terbella dams and power houses and electrified village after village in a short span of time with a remarkable in-house expertise developed in the field of power transmission and distribution with multiple global lenders readily financed the power generation and high tech technology segment.

KESC performed equally well to cater to the exponential growth of industry and housing in Karachi. The availability and affordability of electricity and tariffs in Pakistan were rated as the best in the region.

The performance of both Wapda and KESC started to deteriorate from the beginning of the 1980s. In the late 80s, KESC was placed, albeit briefly, under the remote control of Wapda which itself by this time was experiencing poor governance in all respects; its functioning was now marred by corruption, nepotism and incompetence.

In the early 1990s, the World Bank was invited to advise and finance the restructuring of Wapda. They proposed de-bundling of Wapda into two parent entities - Wapda and Pepco. Wapda was now required to manage hydropower generation and irrigation, whereas Pepco was asked to manage thermal power generation and distribution with four generation companies (Gencos) and 10 power distribution companies (Discos). Moreover, an independent National Transmission & Distribution Company (NTDC) was established to evacuate power from generation companies and transmit it to distribution companies at high voltage of 220 and 500 KV.

Under the World Bank plan, all the said companies were to be first corporatized as individual business entities operating under an independent board comprising of professional personnel. Upon stabilization, these were to be privatised.

Pepco soon became a hot bed of corruption and poor governance with its boards managed by political appointees of low caliber serving the vested interests - a state of affairs which is still in vogue. For many years, Gencos and DISCOs have been incurring heavy losses in the shape of line losses, power theft, receivables and procurements.

Some half-hearted attempts were made by former governments to privatise them but the process was aborted in the face of workers' protest and obstacles placed by vested interests. Interestingly, however, the World Bank never appeared to have really pushed hard its proposal for their privatisation.

In 1994, the PPP government fell for the well- touted concept of going for Independent Power Producers (IPPs) and under a liberal investor friendly power policy of 1994 the first IPP - Hubco power project of around 1000 MV - was established at Karachi in 1996, sponsored by International Power of the UK. It was financed and supported by the World Bank.

Thereafter, the power generation in the public sector was abandoned and the existing plants' areas of upkeep and upgradation were neglected - the said state of affairs continues to bleed the country's economy.

What followed was the arrival of IPPs of all sorts - furnace oil, diesel, coal and LNG-based - in the absence of any consideration of their economic viability and affordability. Today, there are around 42 IPPs in Pakistan.

During the tenure of President Musharraf, Wapda prepared an ambitious 10-year plan to set up small, medium and mega hydropower projects all over Pakistan. It never really kicked off as the government of the day decided to also open hydropower generation to the private sector. Today many mega hydro power projects are under execution in the private sector like Karot, Suki Kinari and Neelum-Jehlum with a total capacity of over 3000MW being executed by the Chinese EPC contractors. It is widely argued that the finalization of these contracts was never preceded by any real competitive bidding.

It is unlikely that the tariffs of hydropower will be low as per normal expectations; these may turn out to be as expensive as thermal. Another financial debacle is round the corner.

Pakistan's fragile economy of today is checkmated by a very well entrenched and resourceful fraternity of IPPs, power generation and distribution companies in the public sector. The redundant and incompetent government regulators and machinery are in no position to put up a fight in this regard.

A fragile political setup of the government rules out the option of any head-on confrontation with the negative forces. There are voices in the highest corridor of power and political circles of both houses that the IPPs have taken the country for a ride. But it was their silence in all these 25 years that allowed IPPs to remain unchallenged. Majority of the present legislatures were sitting in treasury or opposition benches at one time or other with their collective responsibility to safeguard the national and public interest. At the end of the day it is the poor, middle class, farmers and industrialists of the country who will foot the bill on account of silence of their representatives positioned by them in assemblies and senate. It is about time they set aside their differences and figured out ways to move the country out of its financial crisis.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)