The new power culture
By SHABBIR H. KAZMI
May 01 - 07, 2000
The Pakistan Electric Power Company (Private) Limited (PEPCO) has been entrusted the task of managing the transition of WAPDA from a bureaucratic structure to a corporate, commercially viable and productive entity. It is a mammoth task and progress in the initial months was rather slow, but one should keep in mind that responsibility is enormous and transition is a long drawn process.
Before going into further details of the restructuring programme, it is necessary to understand the shift in the GoP policy. The GoP, in line with its Strategic Plan of 1992 approved by the cabinet committee, had decided to restructure the entire power sector in the country. This included:
De-regulation of power sector
Promotion of IPPs
Restructuring of WAPDA
Privatization of select corporate entities
The factors responsible for the shift in policies were: generation capacity could not be increased to meet demand, WAPDA's growth caused inefficiencies, 'demand suppression' and high tariff policy, proliferated theft. All these factors, over the years, adversely affected WAPDA's financial condition.
As part of this programme WAPDA's functions under its Water Wing and Power Wing were to be segregated. It was previously envisaged that all power generation, hydel as well as thermal, would be corporatized. However, later on it was decided that the hydel generation should remain part of the Water Wing or the remaining WAPDA.
PEPCO has prepared the conceptual framework and is following a comprehensive strategy whereby WAPDA's vertical-monolithic Power Wing has been restructured into twelve (12) distinct autonomous entities under Companies Ordinance 1984. These are: three generation, one transmission and eight distribution corporate entities. The restructuring programme of WAPDA's Power Wing is based on the new strategic policies of the GoP and endorsed and supported by the donor institutions.
The aim of this transition is to install corporate and business culture through: adopting of good business practices, enhancing productivity and efficiency, including customer orientation and service culture, improving quality of services setting performance targets, reducing costs, theft and wastage. This will be based on extensive use of information technology, management information systems, monitoring and prudent decision making.
It has been decided that some of the functions currently being performed by WAPDA are of national importance and will therefore continue to remain with WAPDA/GoP in the largest interest of the country. These are:
Power System Planning
Backbone Transmission System
It was also decided that some of the common facilities, being previously shared by the two wings and by various departments within the power wing, should be segregated. These would initially remain with WAPDA unless transferred to any other particular corporatized entity. These facilities include hospitals, schools, training facilities and computer centre etc.
It will be interesting to note that initial plan conceived was to divide WAPDA into various corporatized units which would be owned by a holding company. Incidentally it was also named PEPCO. During due diligence it was felt that creation of such a holding company would only be a cosmetic change and lead to creation of yet another WAPDA. Therefore, the need was felt to create an entity to plan and execute the whole process of transition and should have no other role in the future.
The shift in policy resulted in the establishment of the present PEPCO. It was incorporated in late 1998 and became fully effective in 1999. It was given the mandate to take control and manage the process of transition in WAPDA Power Wing. It is a fully GoP owned company and has been given a time period of two years to complete the restructuring, corporatization and facilitate ultimate privatization of corporatized entities. The Company will be liquidated at the expiry of the designated period.
According to Munawar B. Ahmed, Chief Executive Officer, PEPCO, the Company has been awarded a very difficult task. In order to execute its assigned mandate the first and most difficult step was to hire the services of experts who could deliver the desired results within the time period. We were lucky to be able to employ professionals purely on merit under the able guidance of Chairman WAPDA, who is also the chairman of PEPCO. The selection of a team of qualified and dedicated professionals has enabled us to make progress at a much faster speed.
"PEPCO is trying to install a corporate culture, initiate a sustainable change, management process, introduce innovations, improve technical operations and management and setup HRD systems. At the same there are efforts to attain commercial viability and profitability with ability to obtain finances for expansion and growth. The ultimate objective is to enhance value of companies as viable and profitable entities", added Munawar.
Manpower Transition Issues related to the human resources complement of the new companies are: number of existing staff who will be absorbed by the companies, right sizing and schemes that will govern or characterize the movement and assignment of WAPDA employees to the individual companies. According to Munawar efforts are being made to follow some basic rules. These are: manpower deployment/assignment should be based on the principle "people follow assets", technical personnel to be transferred intact to the companies and redeployment to be applied to employees performing central support services, manpower training, retooling to be done in support of personnel redeployment and organizational streamlining and re-engineering, and change management to be done at the company level.
Three generation companies (GENCOs) have been established to own and manage the entire thermal power generation capacity of WAPDA. These are: Jamshoro Power Company (1,024MW), Central Power Generation Company (1,665MW) and Northern Power Generation Company (2,026MW).
Eight distribution companies (DISCOs) have been established to cater to 11.3 million customers of WAPDA. The annual billing is estimated around Rs 135 billion. Out of the total consumers, 9.3 million are domestic, 1.5 million commercial, 0.19 million industrial, 0.175 million agriculture and 35,000 others type. Some of the key issues in future expansion of DISCOs are: rural electrification, subsidy to various groups of customers.
National Transmission & Despatch Company Limited (NTDC) has a mammoth role to play. It is the single buyer of electricity generated by all the power producers and will also be the single supplier to all DISCOS. It will be responsible for effective and economical transmission of electricity from producers (Hydel, GENCOs and IPPs) to distribution companies. It will also perform a key role in GoP's overall planning and implementation of energy management to meet growing demand for electricity. WAPDA's current transmission network consist of nearly 42,000 kilometers of 500kv and 220kv lines which have been transferred to the NTDC.
It is worth noting that the newly created corporatized entities have prepared their annual accounts for the period ending June 30, 1999 according to Companies Ordinance 1984. This has been done for the first time in the history of WAPDA. These accounts have been audited by the external auditors and would be presented to respective boards of directors in due course of time.
Another important point to be noted in that in all the corporatized entities initially board members were nominated from WAPDA to complete the process of incorporation. However, later on new boards have been constituted with members from PEPCO and the private sector. A typical Board of Directors comprise of three representatives from the private sector, two nominees from PEPCO and Chairman WAPDA.
According to chairman, WAPDA, under a Tripartite Agreement in 1985, the World Bank, the GoP and WAPDA agreed to implement a new strategy and policy for induction of the private sector for setting up thermal power generation plants. In 1994 the GoP announced the Energy policy. Todate, 11 independent power producers (IPPs) have commenced operations and another two are scheduled to come online shortly. HUBCO with a capacity of 1292MW came online on March 31, 1997. At the same time nearly 1000MW power generation capacity was established as captive power plants.
The total installed power generation capacity in the country is 15,280MW. This includes WAPDA (Thermal 4,825MW and hydel 4,689MW) and IPPs (5,666MW including KAPCO with 1611MW). Despite, growth of the sector, it is also true that the tariff rates in the country are unrealistic and a large percentage of the population does not have electricity connections.
As the chairman WAPDA has said recently, "Pakistan's entire energy sector is at a cross roads. We must take bold initiatives to safeguard our national interests and prevent mortgaging our future generations to increasing debt burden. The ultimate objective of all our efforts should be to provide affordable electricity to majority of our population."
However, it is also necessary to understand the model on which WAPDA operates today and the proposed model. The Authority was initially given a mandate for water development as the name, Water and Power Development Authority, itself explains. Its assigned role was to plan and construct water reservoirs and hydel power generation and distribution was a side activity. Due to the location of various dams, it had to undertake transmission of electricity from the point of generation to the point of consumption. Therefore, over the years it has emerged as a composite utility performing the functions of generation, transmission and distribution. Due to the tremendous growth WAPDA has become difficult to manage and maintain operational efficiencies.
According to some business analysts the corporate history itself is very strange. Initially smaller companies are established which grew over the years. Mergers and acquisitions are made to achieve synergy. This, at some subsequent stage make them too big to be managed efficiently. This leads to their division into smaller but economic and manageable units.
WAPDA at the time of its establishment in 1958 had 119MW of total generating capacity. It was set up to implement the Indus Basin Treaty as a 'Development Organization'. It was gradually involved in a number of other activities and deviated from its original mandate. As it grew it also became difficult to manage and became inefficient and also weaker with each passing year. At the same time there was a shift in the lending policies of lenders due to global trend of privatization.
While many countries were able to adjust to the changing environment, Pakistan is still lagging behind. One of the reasons was that WAPDA had become too big an entity and its division into economically viable units was a difficult task. On top of this, the efforts made in Pakistan were reaction to outside pressure. Since there was no sense of 'ownership' efforts made were only half-hearted, politically motivated, inconsistent and incoherent. This includes privatization of Kot Addu thermal power plant and efforts to privatize Faisalabad Area Electricity Board.
Now, WAPDA is being restructured following a combination of utility models used in both UK and the USA but the main objective is to make the new corporatized entities economically viable and efficiently manageable. The UK model consist of generation companies, transmission and distribution companies. The USA model consist of metropolitan area based utilities involved in power generation and distribution.
According to Mohammad Amjad, Executive Director (Finance), PEPCO, "The concept of monopoly in the utility operation is being done away, and now more regulated, competitive structure is being shaped in line with the Pakistan National Electric Power Regulatory Authority Act. NEPRA is presently shaping rules to achieve the end objective where power sector would be free from cross-subsidies and direct government intervention."
Pakistan is fortunate enough that various models of restructuring of power sector globally are available. PEPCO can design its plan by making use of various models to satisfy Pakistan's need.
However, some of the key issues which need immediate attention and active participation of the GoP and the lenders are: area and customer specific subsidizes, tariff rationalization, rural electrification programme and its funding and giving a real autonomous status to NEPRA.
WAPDA was created under a constitutional cover. To facilitate smooth transition, WAPDA Act has been amended in 1999. There was a need to provide the full cover to the restructuring programme to avoid possible litigation/controversy at any stage.
It is heartening to note that all the DISCOs have prepared their audited annual accounts. These will be submitted to Security & Exchange Commission of Pakistan and any one can see them. However, some of the analysts say that these accounts may also printed in local print media. It is true, that initially there may be some criticism on accounting policies being followed and inadequate disclosure. However, unless the annual accounts are not reviewed by financial analysts the ultimate objective, generating interest of strategic investors in the process of privatization, cannot be achieved. Another advantage of full disclosure will be complete transparency in the proceedings.
Per capita electricity consumption in Pakistan is still very low as compared with other developing countries. Immense opportunities exist for investment by local as well as foreign investors. Most of the IPPs have already commenced commercial operations. The IPPs experience will go a long way in redefining energy policy to attract foreign investment in Pakistan.
Nations learn from their past experience but the key objective remains the same sustainable economic growth through affordable energy. The current status of power sector, potential for investment and attractive rate of return on equity offers immense opportunities to the investors.
Profile Munawar Baseer Ahmad
Munawar Baseer Ahmad was appointed Chief Executive Officer, PEPCO early this year. He has his B.Sc. Electrical Engineering from UET Lahore in 1973 and proceeded to USA, completed his M.Sc. in 1976 and MBA in 1979 from University of Houston. He is a registered Professional Engineer in Texas, USA as well as in Pakistan and is a member of IEEE USA, IEEEP, Management Association of Pakistan and Computer Society of Pakistan. He has been elected to several societies and various management and professional bodies in Pakistan and overseas.
He has 27 years diversified management, engineering and technology application experience and has been in senior positions with several leading multinationals in USA, Middle East and Pakistan. He has worked in the USA with Fluor Daniel Engineers, SIP Parsons, Shell and General Signal in senior project engineering and management positions on various multidollar projects.
He has presented several papers on Engineering System & Technology, Computer Networks and the Internet in National and World Conferences. In Pakistan, he has been an active proponent for development of science, engineering and technology. He was nominated for the PM's High Level review committee for Science & Technology. He is often invited as speaker and expert panelist in National/International Conferences and local institutes of management & engineering such as PSC, LUMS, IEEEP, PCB and others.
He was honored by the International Telecommunication Union (ITU), Geneva and invited to chair a full session of ITU World Telecom Conference in 1997. This was the first time that a delegate from South Asia and Pakistan was awarded such recognition by ITU.