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According to a report that appeared in this paper the other day, the World Bank has expressed its disappointment over the fact that Wapda has failed to determine and notify tariffs for its different semi-independent power distribution companies (Discos) - a task it was supposed to complete by the end of September so as to pave the way for their corporatization of the new companies.
The report says that the World Bank has told the government that it would not initiate financial appraisal of the Discos and their investment projects before tariffs are notified and their possible effects included in the financial projections and Strategic Business Plans.
The government is now said to be trying to complete its side of obligations to meet the new deadline, which is the end of the current month. It has informed the Bank that it is in the process of deciding on subsidies for certain categories of consumers as part of a new tariff determination and notification process.
Our report also points out that a number of other issues related to the Discos' financial position, have been identified and are being dealt with, including restructuring of the balance sheets to ensure at least 20/80 equity/debt ratio. Notably, as per the power sector reform that the government had resolved to undertake a while ago, all the Discos had to be unbundled from Wapda so that they could operate as separate corporate entities.
Yet whatever independence they are supposed to enjoy exists only on paper, and in effect their affairs are managed by Wapda nominees. Being subject to a unified tariff, the companies that are constantly running into losses, like those based in Quetta, Hyderabad and Peshawar and the one covering the Federally Administered Tribal Areas (FATA), find themselves under no particular pressure to perform better. The government covers their inefficiency through cross-subsidies from the profitable companies.
Thus inefficiency gets promoted and badly run monopolies are strengthened; all at the cost of the consumers.
Understandably, the government has the responsibility to look after the interest of the weaker sections of society through subsidies. But it also needs to ensure that no one takes undue advantage of or becomes addicted to patronage, as is the case with FATA consumers. Wapda officials have been rightly complaining that the people in these areas have gotten so used to having free supply of electricity that they refuse to pay even concessional rates that Wapda has been attempting, from time to time, to collect from them.
And as is usual in such situations, the consumers there resort to excessive use of electricity, causing a big dent in Wapda's revenues. It is imperative, therefore, to separate these entities; they must be judged on the basis of their performance rather than allowed to remain incompetent sheltered by cross-subsidies. Indeed, the government has to look after the welfare of people who are disadvantaged one way or another and offer concessions to them. At the same time, such concessions must not encourage inefficiency.
The poorly performing Discos should know that they have to worry about line losses and thefts. They may be subsidised for a specified time period, but also be given targets to achieve. If they still fail to improve, the government should open the sector for privatisation, ending the present Discos' area monopolies and engendering competition among new companies.

Copyright Business Recorder, 2005

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