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Hubco/Wapda: An update on dispute

Too much speculations fluctuate stock business

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 cost.

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 stock exchange.

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 charges.

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 years.

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.