Bailout package for Wapda

The government has arranged a Rs 30.9 billion bailout package for Wapda to enable the utility to clear the backlog of payments it owes to IPPs as well as to meet its debt servicing obligations, says a Recorder Report quoting Finance Ministry sources.
The package includes a short-term loan of 15.9 billion, to be extended by private and public sector banks and institutions, with the Dubai Islamic Bank contributing Rs 400 million. In another move, Sukuks amount has been raised from Rs 8 billion to Rs 15 billion, based on the valuation of four turbines being offered for lease. In addition, Wapda is expecting the usual May/June increase in revenue collection, between Rs 5 to Rs 10 billion. According to Wapda sources, the funds thus collected will be sufficient for the country's largest power utility to overcome its financial problems.
In addition, the Finance Ministry has made a low-interest $200 million standby arrangement for six months to one year from Standard Chartered Bank, and asked Wapda to avail of this facility in case it needs dollars to be converted into rupees.
According to the documents available with Business Recorder, Wapda had sustained a total financial deficit of Rs 104.6 billion till February last, of which Rs 57.8 billion was in operational losses, while Rs 22.2 billion was in the shape of DSL to the government of Pakistan.
According to official sources, Wapda is, meanwhile, planning to file fresh petitions with Nepra to seek a 20-paisa per unit in its charges from the next financial year. (Incidentally, power tariff in the country is already on the higher side, thanks largely to the exorbitant rates charged by IPPs.) About six weeks ago, the Minister for Water and Power, Liaquat Ali Jatoi, had attributed the country's worsening energy crisis to Wapda's "failure" to initiate timely measures for building additional power generation capacity in the country.
According to available data, Wapda's average daily shortfall last year stood at 411 megawatts, and the occasional outages by Wapda units at Tarbela, Mangla, Chashma, Malakand, Multan, Guddu, Lahore and Jamshoro - reportedly totalling about 1,100 megawatts - have since seriously contributed towards a massive supply crunch.
A World Bank study says that the inordinate frequency of power outages has badly hit the industrial sector, while the Planning Commission has warned that unless the existing power generating capacity is substantially increased, the country will not be able to attain high growth targets set by the government.
Wapda's financial woes have essentially stemmed from poor financial management, political interference and a long-term disregard for prudent business practices. Weak governance has resulted in inefficient utility operations, power theft, illegal power supply, reduced billing and collections, and non-payment of arrears.
Secondly, a serious problem has arisen between the IPPs, the fuel suppliers, and the engineering industry. All these factors have contributed to the build-up of a financial crisis in Wapda, which if not addressed immediately, will make a highly adverse impact on the country's economy, as our electricity demand is growing by six to seven percent per annum.
According to one projection, the supply shortfall will escalate to 5,520 megawatts by the year 2009-10, when firm electricity supply will stand at 15,055 megawatts against a peak demand of 20,584 megawatts. Interestingly, despite all the mega projects unveiled by Wapda under its Vision 2015 programme, Pakistan's installed power generation capacity increased by only 0.3 percent in one year, ie from 19,389 megawatts in 2004-05 to 19,439 megawatts in 2005-06. But during this period, the country's energy requirements grew by about 12 percent under pressure of the fast growth trajectory of the economy set by the government.
As for transmission infrastructure, there is said to be a need of $100 million investment per annum till 2010, while an additional annual investment of $200 million is required for modernising the distribution network. Taken together, these investments would amount to about $350 million per annum, over and above quantum of investment needed in power generation. Are we in a position to make this type of investment?
As Pakistan has mainly depended on non-renewable sources, the production of energy is not going to keep pace with its escalating demand. And breaking free from this vicious circle is not going to be an easy task.
Further, the financial cost of tapping the hydel energy potential will be quite high, mainly due to the long distances that lie between the mountainous hydel resources and the urban centres of consumption. The cost of building the transmission infrastructure, its maintenance and the line losses will therefore be quite considerable.
Viewed in retrospect, it seems that large-scale involvement of IPPs in Pakistan's energy sector, was an imprudent decision. Though dictated by the pressure of spiralling energy deficit, the involvement of thermal-power IPPs should have been kept to the minimum, and that too as a short-term solution.
We cannot afford to place major reliance on thermal power, particularly when hydel resources of over 41,000 megawatts are available in the country. Secondly, the hefty package cobbled together to bail Wapda out of its largely self-created problems has all the trappings of a "subsidy", which will ultimately erode Wapda's financial viability.
Thirdly, the top-heavy monolith in fact needs to be suitably trimmed to get rid of needless flab. (An important way to introduce financial discipline in Wapda is to drastically curtail expenditure incurred on perks and privileges of its top bosses.) Fourthly, the government should ensure that the loss Wapda has sustained over the years is not passed on to the consumers in the shape of higher power tariff.