. .

1_popup_home.gif (1391 bytes) f&m.gif (7233 bytes)

IMF links release of tranche with resolution of IPPs issue

  1. IMF tranche and the IPPs issue
  2. 50% taxable income goes unreported
  3. Pak-Oman Investment Company
  4. A review of Hubco's annual accounts
  5. United Airlines promoting business

Dar summons Wapda chief to London to discuss Hubco issue with lenders

From Shamim Ahmed Rizvi, Islamabad
Oct 04 - 10, 1999

All indications from the relevant official quarters confirm the common perception that the IMF has made it clear to Pakistan that the withheld tranche of $ 280 million will not be released unless the IPPs issue specially the Hubco is resolved.

Sensing the IMF mood, the Finance Minister, Mr. Ishaq Dar who is currently in Washington to negotiate the matter with IMF authorities, has summoned WAPDA Chief and his aides to London on Oct 4 to resolve the dispute with Hubco. This would be the first time that the government is to enter into discussion with foreign backed Hubco on tariff reduction in a foreign country. All direct and bilateral negotiations and tariff reduction efforts in the past 30 months have taken place either in Islamabad or Lahore, though IMF and the World Bank have used forum and opportunity for the resolution of the dispute. There are sufficient indications among the relevant quarters to believe that with strong arm twisting in Washington "this would perhaps be the final round".

Ishaq Dar who is holding crucial negotiations with donors on the sidelines of the World Bank and the International Monetary Fund (IMF) annual meetings, contacted relevant officials in Islamabad and wanted that a delegation comprising Lt. Gen Zulfiqar Ali Khan, the WAPDA Chairman, and one of his aides be despatched to London where he (Dar) will also be reaching on October 4. Official requirements are being completed for their departure, a source said.

Last time, exactly two months back, Dar spoke on the telephone from Washington and wanted a notification issued for the constitution of two-member IPP committee comprising himself and Wapda chairman, following tough time given by the IMF management.

Hubco directors and senior officials are currently in London, the head office of National Power, a multi-billion dollar company. The Dar committee will hold talks with Hubco management in London on October 4 and 5.

According to knowledgeable sources, the donors have taken very strong position on IPPs, particularly the Hubco issue and want its final resolution for the release of $ 280 million tranche. Because of the credibility gap, Hubco wanted to finalize the deal through donor agencies before the money was released and used the timing of the IMF tranche in its favour.

Official sources, however, said that Hubco built up a campaign by blowing up the issue through its decision of invoking sovereign guarantees of the government last week to settle the dispute according to its own terms. Pakistani authorities were still in the process of formulating a strong stance on sovereign guarantees issue. On a similar occasion a couple of months back, Uch Power Project's claim for invoking sovereign guarantees was rejected by Wapda and the government.

Talking to newsmen in Karachi last week, Water and Power Development Authority (WAPDA) Chairman Lt. Gen Zulfiqar Ali Khan said that government would shortly move the court against Hub Power Company (Hubco) for calling sovereign guarantee of the government. Legal remedies were available on Hubco's action and "Justice will be done", he added.

He was asked what step would be taken against Hubco's recent step calling sovereign guarantee from government over WAPDA's default on payment to the company. He said that issuance of Preliminary Termination Notice (PTN) by Hubco to Wapda was in violation of Supreme Court order.

He said that Wapda was not facing any immediate cash flow problems and was paying 100 per cent dues to Hubco. It was the order of the Supreme Court that Wapda would pay Hubco against power purchase not exceeding Rs 845 million per month, based on monthly premise basis. He said that currently, Wapda was paying dues to Hubco at an average of 7.2 cents per kwh and the power plant earned 74 per cent profit in the first two years of its operation. The Hubco proposal on tariff reduction was giving a difference of 0.21 cents per unit which is not affordable for the country.

Wapda chief said Hubco has chosen to pressurise Pakistan through World Bank, IMF and its foreign lenders as it knew that economy of the country at present was not strong. In spite of that Wapda was ready to arrive at a negotiated settlement.

According to inside sources, WAPDA has not been paying Rs. 845 billion under the Supreme Court decision as claimed by the chairman. They had been paying only Rs. 732 million for the last month when the court decision came. WAPDA is now preparing to pay Rs. 113 million to Hubco as difference for 10 month, to bring its payment at Rs. 845 million as per decision of the Supreme Court. This is being done on the advice of legal Advisers of WAPDA who are of the opinion that before approaching the court against Hubco for calling sovereign guarantees of government of Pakistan WAPDA must clear its earlier payment as per court decision.

The decision by the board of directors of the Hub Power Company, Pakistan's largest independent power producer, to invoke the sovereign guarantee of the Pakistan government, in its row over power tariffs with WAPDA is a wake-up call for the government. It once again brings into focus the long-drawn tussle between the government and IPPs. This avoidable controversy has caused immense damage to the country. Unfortunately, the government's desire to discredit the power policy of its predecessors was so overpowering that in pursuit of that drive it seems to have hurt the country. A distinct line should have been drawn between politics and the economic interest of the country. This has not been done in this case.

The resolution of power sector controversy had very badly affected the investment climate in the country. Risk insurance cost of Pakistan has gone up and the foreign direct investment (FDI) and other private flows have sharply declined. Foreign private investment, both foreign direct investment and portfolio investment has declined to $ 359.9 million in 1998-99, from an average $ 1.2 billion during 1994-95 to 1997-98. In 1994-95 total foreign private investment in the country was $ 1.53 billion including $ 442.4 million as FDI and $ 1089.9 million as portfolio investment.

The IPPs dispute had severely damaged the investment friendly image of the country, and conveyed a negative signal to foreign investors regarding government of Pakistan's commitment to honour its agreements. This fact was admitted in various official reports. But, vested interests in the IPPs issue had always frustrated any positive move to address these problems. The Ministry of Finance officially admitted in a summary that the climate for investment in country has not remained favourable as a series of events have shaken the confidence of investors, which also created mistrust in continuity of government policies.

The benefit of revised agreements with six IPPs after losing a potential of at least over $ 2 billion investment during the last two years, was just about $ 200 million's deferred payments. Sources in the private power industry said that revised agreements had enabled the state-owned Water and Power Development Authority (WAPDA) to get a relief of $ 200 million in the initial years, by restructuring the payment mode from front-loaded tariff structure to a more levelised one.

Pakistan's urgent need for release of IMF installment of $280 million, withheld since July and IMF's insistence on resolving Hubco issues before the release of any funds, has come on top of the agenda of Pakistan government. This critical position may force the parties to resolve the dispute in their forthcoming meeting scheduled to be held in London.