Dar summons Wapda chief to
London to discuss Hubco issue with lenders
From Shamim Ahmed
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
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
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.