Expressing its inability to advance any subsidy or financial assistance to Wapda in future, the Finance Ministry has asked the utility to raise power tariff by 23 percent for its consumers in order to ease the financial crunch it is experiencing, says a Recorder Report.
The new Finance Secretary, says the report, has written a letter to Water and Power Secretary, reminding him of the commitment given by Wapda for notification of tariff as per Nepra's determination.
Prior to the tariff determination, Wapda had proposed that the National Transmission and Dispatch Company (NTDC) and Discos borrow Rs 12.8 billion from commercial banks against the credit ceiling sanctioned by the Government of Pakistan for meeting the development expenditure.
The utility had also proposed a number of other measures, including conversion into equity of the Debt Serving Liability (DSL) to GoP, amounting to Rs 17.8 billion, besides issuance of Sukuk bonds worth Rs 5 billion. It may also be recalled that the former Wapda chief, Tariq Hameed, had made a representation to the Finance Secretary, accusing the ministry of withholding Rs 50 billion of the utility, thereby forcing it to take short-term loans from banks to clear the outstanding bills of IPPs and fuel suppliers.
Further, Hameed had said in a recent presentation that the receipts of subsidies and assistance from the government during 2006-07, as per Nepra-determined tariff, were short by Rs 50 billion and Wapda had to take short-term loans against these payables to clear the bills of IPPs and fuel suppliers.
The amount not paid to Wapda that was due in 2006-07, included Rs 18.4 billion on account of tariff subsidies for February 24 to June 30, 2007, Rs 2.1 billion as balance of GST refund for protected categories, Rs 11 billion in addition to Fata receivables during 2006-07, Rs 1.3 billion as government's share in subsidy to Balochistan's agriculture consumers, Rs 0.8 billion Qesco subsidy share, not covered in Nepra tariff, Rs 0.4 billion as balance of government subsidy for AJK up to February 23, 2007, and Rs 16 billion short subsidy for July 1, 2006 to February 23, 2007.
Meeting these hefty liabilities would surely be a huge drain on Wapda's resources. However, most analysts tend to concur that Wapda's financial crunch is essentially a result of poor financial management, political interference and a disregard for prudent business practices. Weak governance has tended to spawn inefficient utility operations, power theft, reduced billing and collections, and non-payment of arrears.
Secondly, a serious problem has arisen between IPPs, the fuel suppliers and the engineering industry. All these factors have, directly or indirectly, contributed to the build-up of financial crisis in Wapda, which, if not addressed immediately, will make a highly adverse impact on the country's economy, as our annual demand for electricity has been growing at the rate of six to seven percent.
Thirdly, experts believe that deregulated electricity tariffs for consumers on the one hand, and regulated prices paid to the IPPs on the other, have rendered the power pricing structure in Pakistan unjust and irrational. There is a strong perception that the tariff determination system in the country is not based on the actual cost of services.
Fourthly, the distortions in prices have also arisen due to the existence of cross-subsidies among various sectors, ie commercial rates are higher than the domestic, industrial and agricultural rates. Wapda has tended to justify higher tariffs on the plea of payments, which it has to make to IPPs under the terms that are generally perceived to be contrary to the principles of free trade and liberal markets.
At the same time, there is a perception that Wapda has foiled attempts to find out the true cost of services. These problems can be solved through fast-track execution of hydropower projects. However, most of the power projects lined up by the government for completion by the year 2009 are based on thermal technology, despite the fact that the country possesses about 28,000 megawatts of non-dam hydropower generation capacity.
According to one projection, the gap between supply and peak demand in the country 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. Painfully slow progress on power projects, particularly the hydel projects, has worsened the situation.
For instance, according to available data, 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 fast growth trajectory set by the government.
An increase in Wapda's power tariff will have a destabilising knock-on effect on all sectors of the economy, which will further erode the competitiveness of our exports, besides fuelling inflation in the country.
Therefore, instead of further burdening the consumers with higher tariff rates, the best strategy for the government will be to ensure prompt payment of dues it owes to Wapda, so that the utility is better able to cope with the financial crunch. On its part, Wapda should ensure that the power generation and distribution system is suitably streamlined so as to minimise power losses.
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