The new power
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:
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
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:
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
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
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
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.