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Financial restructuring of wapda

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WAPDA needs financial restructuring and injunction of fresh equity

From YOUSAF RAFIQ
Special Correspondent, Islamabad
Feb 14 - 20, 2000

WAPDA faced acute financial problems and liquidity crunch during the last three years. Power Purchase agreements with the high cost IPPs, heavy outstanding dues from customers and exceptionally high line losses were the main contributory reasons. As a consequence WAPDA's Debt Servicing Liability (DSL) arrears to Government of Pakistan accumulated to Rs 36.4 billion up to 30-6-1999. With reduction in cost of power from two major IPPs viz HUBCO and KAPCO under an interim court order, improvement in operational efficiency due to induction of Army and negotiated reduction in tariff with some IPPs WAPDA's financial position has improved marginally. To make it financially viable on sustainable basis, WAPDA needs financial restructuring and injunction of fresh equity.

WAPDA's financial position was extensively reviewed with WAPDA's management. Its cash flow projections have been prepared based on two scenario viz (i) pay out to two major IPPs viz HUBCO and KAPCO on basis of interim court order and (ii) pay out to IPPs on the basis of PPAs. The cash flow deficit in scenario (I) and (ii) has been estimated at Rs 36.4 billion and Rs 60 billion, respectively.

Deficit of Rs 36.4 billion as per scenario one is proposed to be met through conversion of WAPDA DSL over due to Government of Pakistan as on June 30, 1999 amounting to Rs 36.4 billion into GOP's equity in WAPDA, re-rolling of WAPDA Bonds amounting to Rs 4.3 billion and bank loan of Rs 5 billion, thereby providing a cash surplus of Rs 9.3 billion.

In the case of second scenario which takes into account pay outs by WAPDA to IPPs on the basis of PPAs, in addition to the aforesaid measures (GOP's equity in WAPDA, re-rolling of WAPDA bonds and credit lines) the financial gap is proposed to be met through on-lending World Bank's PSAL proceeds to WAPDA. Resolution of IPPs issue is the major hurdle in disbursement of PSAL. Once these issues are resolved WAPDA may be in a position to obtain further power sector development loans from the World Bank, Asian Development Bank and other donors.

Keeping in view current macro economic framework, WAPDA's current cash flow position, corporatization/commercialization of power sector, the Ministry of Finance has proposed to convert outstanding DSL liability of WAPDA towards GOP as on June 30, 1999 amounting to Rs 36.4 billion into GOP's equity in WAPDA; and financial restructuring of WAPDA may be approved to make WAPDA financially viable.

Anexure-A

Estimated Cash Flow Position of WAPDA for the year 1999-2000

Description (Rupees in billion)

With Private

Power Cost

As per With Private

Court Power Cost

Decisions As per PPA

Resources

Revenue (net Receivables) 156.6 156.6

Principal Instalment Kapco Note* 0.0 0.9

Discounting of Kapco Note* 0.0 6.6

Sale of Non Core Assets 0.5 0.5

Total Cash Resources 157.1 164.6

Applications

O&M Expenses 15.1 15.1

Fuel Cost — GOP 22.4 22.4

Private Power Costq 57.6 76.8

Current DSL — GOP 22.0 22.0

Current DSL — other than GOP 21.0 21.0

Payment of Pending Liab. GOP 36.4 36.4

Payment of Pending — Private Power 0.0 11.8

Total Cash Application 182.1 212.1

Operating Cash Surplus/(Deficit) (23.9) (44.5)

Development Cost (Local) 12.5 12.5

Net Cash Surplus/(Deficit) (36.4 (60.0)

*Not possible under Private Power as per Court Decision Secnario

Anexure-B

Financial Restructuring FY1999-2000

(Rupees in billion)

With Private

Power Cost

As per With Private

Court Power Cost

Decisions As per PPA

Estimated Cash Deficit (36.4) (60.0)

Restructuring Proposals

Conversion of outstanding GOP

DSL as on 30-6-1999 into GOP

Equity in WAPDA 36.4 36.4

Allocation of PSAL Proceeds

During FY 1999-2000 (250 Mln. $) 0.0 13.5

Re-rolling of WAPDA Bonds 4.3 4.3

Short-Term Bank Ceiling 5.0 5.8

Total Restructurig Resources 45.7 60.0

Net Cash Surplus/(Deficit) 9.3 0.0