Hubco/Wapda: An update on dispute
Too much speculations fluctuate stock business
By AMANULLAH BASHAR
Sep 18 - 24, 2000
We have recently seen resurgence in media regarding a break
through in WAPDA-HUBCO dispute. Chief Executive Gen. Pervez Musharraf who had a
meeting with Hubco representatives in New York recently said that talks with Hub
Power Company had started on a positive note. "We have broken the ice"
he remarked. The CE also asked the Hubco officials to be flexible so that an
agreement could be reached soon.
Earlier, WAPDA Chairman also met with Hubco Chairman Muhammad
Alireza in Zurich to find an answer for resolving the dispute. The WAPDA
Chairman had gone to Zurich to re-establish his longstanding position that Hubco
agrees to a new tariff, which was the average of other IPPs.
This demand of WAPDA had either been categorically rejected
by Hubco who pleaded that such a comparison was clearly not based on economic
rationale because IPPs differed in the project costs based on difference in fuel
technology, project development cost and debt servicing terms.
Experts in energy sector feel that Hubco being a green-field
and first power-producing project in the country had to negotiate high debt
costs than other IPPs for whom the ice had already been broken by Hubco.
Similarly combined cycle gas technology plant of some of the 1994 IPPs were
different both in terms of the financial cost as well as their variable fuel
The Hubco chairman Muhammad Alireza was of the view that
there could not be any negotiation under coercion and that Wapda should desist
from taking a hard line position.
The Zurich talks however fuelled speculations that a break
through had been made. In fact the meeting was most inconclusive. Nevertheless
speculators, as always, gained by trading based on the news. Usually genus of
such speculations cannot be realized after more than one day of trading at the
The most recent meeting on 10th September 2000, between the
Chief Executive General Pervez Musharraf and Hubco's negotiating committee
including its chairman Muhammad Alireza has been high-lighted in the papers as
yet another break through. In that meeting the Hubco negotiating team offered a
revised tariff proposal evolved in a manner to address almost all spheres of the
dispute between the two sides.
The government lawyers, advocates come up with the face
saving idea of concluding a package deal with Hubco. That package was that of
Hubco agrees to a reduced tariff. That Government of Pakistan would drop the
corruption charges. Hubco on its part find itself in a comfortable position and
justified too because the investigating teams were unable to prove corruption
Who would be the sufferer of the never-ending talks? The
loss, which is manifested in the financial investment, erosion in business
confidence and long line of the unemployed, a question to ponder upon.
Though WAPDA's plea that it is committed to provide
electricity at an affordable price certainly carries weight. From government's
point of view Hubco has to take up flexible position for reaching an amicable
solution. On the other hand Hubco contends that the company has already showed
such flexible position. In its defense, the company states that in spite of the
fact that an agreement signed sealed bona fide contract was renegade upon by
Wapda, Hubco on its part continue to honour the agreement by making available
its capacity for Wapda's exclusive use.
The company also argues that it has made numerous proposals
on tariff reduction, which were rejected out of hand by Wapda. The motive of
such rejection could not be anything but economic cash flow gains. Wapda arrears
to Hubco have reached staggering Rs 15-17 billion.
Sources observed that perhaps, Hubco would have to offer some
further concessions then already given in its last meeting to Wapda. On the
other hand, company feels that the real manifestation of flexibility would have
to be from the government side. For once the government would have to understand
that going on a wild goose chase of criminal allegations or corruption is an
exercise which is doomed to failure if the investigating agencies could not find
any proof of corruption despite the intensive efforts spanning over the last 3
It stands to reason that flexibility, which has been
identified as means to the solution of the problem, should be the flexibility of
approach to be shown both by Wapda and Hubco. True flexibility demands that the
issue should be looked purely on commercial terms. Instead of wasting national
resources on expensive lawyers and costly overseas meetings. The focus should be
on all the commercial avenues that could lead to an affordable tariff, which is
acceptable to the government of Pakistan, taking care that it should not hurt
the interest of the investment climate in Pakistan.
The economic managers and the policy makers should clearly
understand that so much damage to our credibility has been done that many
efforts would be required to cure even after the resolution of Hubco dispute.
At a recent conference on "Global Power" held on
May 24-26 in New York, investors and fund managers lamented over the mishandling
of the IPP crisis. Dr. Anjum Siddiqui, Hubco Economic and Financial Advisor have
however expressed confidence in Gen. Pervez Musharraf's personal involvement by
describing it as a silver lining in the dark sky.