Asian Development Bank (ADB) has advised the Finance Ministry not to bow down before "unreasonable terms by the banks just for the sake of speed," with reference to dealing with power sector debts, according to an aide-memoir, a copy of which is available to the Business Recorder. The Bank has given the deadline of March 31, 2010 to the Finance Ministry for power sector loan transfer documentation, the sources added.
The sources said ADB's mission which visited last month also expressed dissatisfaction over the performance of power sector especially with regard to appointments to a couple of top positions. The mission, sources said, was of the view that transfer of debt incurred by the public power sector companies for the tariff differential shortfall has been delayed.
The mission agreed that the government should not be cornered into accepting unreasonable terms by the banks just for the sake of expediency. The Ministry of Finance has been servicing the loans from July 2009. According to Pakistan Electric Power Company (Pepco), all the performance contracts between the public power sector companies and the Ministry of Water and Power have been signed.
The mission received agreements for three companies in February but may have been provided other contracts as promised by Pepco. The sources said, full implementation of the agreements would take some time since performance targets need to be clearly defined, the terms of reference with performance measures established for each group of staff, and monitoring systems established.
Pepco, the sources said, indicated to have these systems in place by July 2010. As mentioned in the October aide-memoire, the mission requested for a breakdown of the savings realised by the power sector companies thus far in realising their target of Rs 12.8 billion included in the plan.
As informed by Pepco, this is being achieved through forced savings from the O & M budget but ADB is of the view that because of this there is a concern that there may not be adequate maintenance funds. Additional savings and inflow from arrears recovery were estimated at Rs 29 billion in October 2009.
With regard to delayed establishment of Central Power Purchasing Agency (CPPA), the mission expressed its concern again that another target date, December 2009, has been missed. In discussion with the Pepco and CPPA senior director, it was found that the organisation would be within the Pepco group with a CEO and not an independent entity as proposed by ADB consultants with a financially and administratively separate/independent Managing Director.
ADB fully supports an independent transparent entity run by professionals to enhance the credibility since CPPA is at the heart of the sector. Asian Bank had budgeted technical assistance, which would have been available, once the top three persons were filled for an independent entity.
Asian Bank has advised the Pepco to co-ordinate with the power sector companies in the implementation of the plan. According to the Pepco's business plan submitted to the ADB its cost-revenue gap is expected to grow to Rs 177 billion, despite notified increase in tariff and fuel adjustment.
"As planned, Rs 55 billion will be funded through the budget, and Rs 43 billion is expected to be recovered through fuel adjustment tariff increase," the plan said, according to sources. According to Pepco, unrecovered loss of Rs 22 billion during 2009-10 would be passed on to FY 2011 budget, and Rs 57 billion would be collected through quarterly tariff determinations.
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