Bifurcation of NTDC: a flawed plan?

A recent news flash about unbundling the National Transmission and Dispatch Company (NTDC) has left many wondering what’s brewing in the Power Division (PD).

The proposals put forward by the committee constituted by PD feature plans for bifurcating the NTDC into Power Transmission Infrastructure Development Company (PTIDC – services & projects company) & National Transmission Maintenance Company (NTDC – operations & maintenance company). It is worth highlighting that as Pakistan moves closer to a liberalized electricity market, the System Operator (SO) and its Planning function is due to be separated as per Nepra ACT amendment 2018.

However, many experts believe this bifurcation exercise to be symptomatic of the infamous ‘Napoleon error of judgement’ and could backfire, further deepening the crisis within the sector.

When trapped in a hole the first step should be to stop digging, likewise the Power Division should exhaust its valuable time and resources on resolving the current predicaments of the National grid company instead of such radical maneuvers.

The NTDC claims an annual profit of slightly above PKR 10 billion and is ranked amongst the best performing entities of the power sector of Pakistan. Its inclusion in the recent rankings for the top 10 best performing State-Owned-Enterprises (SOEs) is a testament to its quality output over the years.

Post unbundling of Wapda, the NTDC was incorporated as a Public Limited Company on the 06thof November, 1998 under the Companies Ordinance 1984 (now Companies Act 2017).

NTDC was granted license by Nepra on the 31st December, 2022 under Section 17 of the Nepra Act of 1997 & commenced commercial operations thereafter. In its early years, the National grid company had a limited transmission network to work with, which the entity has expanded substantially over the years as shown in table 1.

From 2002 till 2024, NTDC’s transmission network more than doubled, which was made possible due to the laborious efforts of the limited but dedicated NTDC professionals. An inefficient organization would have never been able to double the above stats with a scant workforce.

Expansion of the transmission system has witnessed an increase in the system’s evacuation capacity for transmitting power to meet the Discos’ demand, including K-Electric.

Despite the expansion, this quantum remains far less than the generation capacity which reflects inefficient long-term planning at the Power Division, which is the sole custodian of the sector.

Rationale for the Bifurcation:

The proposed bifurcation by PD is based on the premise of consistent delays in development projects, inadequate transmission infrastructure and lack of professional / expert manpower etc. While there is always room for improvement, the overall functioning of an entity needs to be gauged to ascertain whether its organizational structure is sustainable to function efficiently or otherwise.

As evident from the table 2, the state of affairs at NTDC for the major part of last thirteen years or so, were being managed by placing MD NTDC on ad hoc basis or assigning a Ministry official as the acting MD. The short tenures can restrict an individual to short-term planning and decisions crippling their ability to work on long-term goals of the company.

There are several reasons for excruciating delay of critical projects notably lack of funding, right of way, land acquisition and often include constraints, which are not outside the control of organization. Besides these the rapid migration of the country’s trained workforce to the West or the Middle East for better prospects means NTDC lacks quality manpower as High Voltage Works are very specialized and engineered.

In addition to above, NTDC’s ability to self-finance development projects is cut short due to Nepra chopping its revenue requirements. Resultantly, NTDC is working with a truncated version of its filed tariff, i.e., Rs 235/kW/month allowed versus the requested Rs 315/kW/month.

Fallout of the Proposed Bifurcation:

The proposed move would require a great deal of legal, policy and regulatory changes plus it is also not in line with the NEPRA Act (2108), which calls only for the System Operator function of NTDC to be functionally and legally separated. Splitting TNO (transmission network operator) into two entities can invite complex challenges like operating two separate SPVs under one policy and regulatory framework, finding separate suitable business models, figuring out the revenue requirements of PTIDC and delegating responsibility for signing agreements, with the EAD/government.

Fragmentation could also increase delays, cost overruns and lack of coordination between various entities as they will require additional layers of administrative procedures and approvals. Being a single entity allows NTDC the luxury of pushing its individual departments simultaneously to achieve the desired goal and go the extra mile for achieving a specific milestone.

Projectized structure within NTDC would be a win-win approach. Creation of multiple companies would necessitate separate administrative frameworks, leading to higher administrative costs due to duplicated functions such as HR, Finance, Legal, Regulatory Affairs, IT, Media & Public Relations, HSE etc.

To address their operational and administrative costs, the new entities would definitely seek tariff from the regulator. The ultimate burden resulting from this exercise would eventually be passed onto the end consumer and the energy cost would only rise. Furthermore, the Asset Management company would never be willing to inject its equity into other entities that are no longer working under its administrative control.

As explained above, an integrated approach is pivotal for effective working of the transmission sector. The project cycle starting from Planning, Design & Engineering, Procurement/Bidding to Project Development, Project Close & Handover must happen under one entity.

The logical way forward for PD is to transform NTDC into a commercially independent organization. This will require market competitive payroll and incentives and recruitment of experienced professionals at all levels. Emphasis should be placed on improving the governance of state-owned enterprises (SOEs) with automation and digitalization that will help reduce political interference and streamlining procedures. For challenges in obtaining Right of Ways (ROWs) for transmission line and grid station projects there should be legal provisions in place to facilitate the acquisition of land.

Copyright Business Recorder, 2024