Some sensitive areas
By MUHAMMAD BASHIR CHAUDHRY
Sep 30 - Oct 06, 2002
'Wapda's performance in power sector' contributed by the Director, Public Relations, Wapda was published by Dawn (Economic & Business Review) on August 26, 2002. Progress and developments in many areas have been very well presented. Wapda is known as an integrated power utility and many consumers might have a number of complaints, some well founded. However, it must be also appreciated that Wapda is a large and complex national institution and the problems, pressures and situations that its management faces at various levels are not fully known to the consumers and the general public. Resolution of important matters such as bulk sale to AJK government, over dues with the provincial governments, fuel supply or large purchases, supply of power in certain areas at subsidized cost, etc. with possible financial implications, take a lot of time of its senior management. Based on the press reports for the past few months, these sensitive areas have been identified and a brief description provided in this paper with a view to show the role of Wapda in proper perspective. Certain suggestions are also offered for further improving Wapda's performance.
BULK POWER SALE TO KESC: Wapda has been supply power in bulk to KESC for the last many years. The rate that Wapda collects from KESC and the timing of the collection are not a commercially viable preposition. The arrangement might be revised, as it is not sustainable on long-term basis. Wapda supply ranges from 250MW to 450 MW, and in some cases KESC is supplied power though Wapda own system is in shortage and experiencing black outs. According to Wapda, occasional load shedding in Karachi might be attributed to KESC's local system constraints and Wapda should not be unduly blamed for it. As regards supply 300-megawatt electricity to KESC throughout the year, Wapda has reportedly expressed its inability. Future commercial relationship between KESC and Wapda's companies might have to be worked out in due course. A lot of work would be required to agree on the arrangements particularly the tariff for power delivered.
BULK POWER PURCHASE FROM PAEC: Pakistan Atomic Energy Commission (PAEC) sells power to Wapda, generated from Chashma nuclear power project (Chashnupp), a 300MW plant that became operational during 2000. PAEC wanted higher tariff but Wapda resisted, as it would entail further burden its consumers. Now the government has fixed Rs 2.25 per kwh for the electricity being supplied to Wapda from Chashnupp from this fiscal year till the useful life of the plant (Business Recorder 19th August 2002). However, Chashnupp tariff would be reviewed after every four years as per prevailing exchange rate, including changes in operational and maintenance costs. It has been reportedly agreed that Wapda would pay the following rates to Chashnupp for purchase: a) Rs 1.75 per kwh from September 15, 2000 to December 31, 2000; b) Rs 2.05 per kwh from January 01, 2001 to June 30, 2002; and c) Rs 2.25 per kwh from July 1, 2002, till the life of the project.
PAEC has plans to add two new power plants, one at Karachi and the other at Chashma. It will be appropriate that PAEC registers with NEPRA as a power generation company (GENCO) and gets its tariff approved through determination process prescribed for all generation companies. This will also be good for PAEC by improving control on costs in business like manner and efficient generation.
Bulk power sale to AJK: Wapda has been supplying power in bulk to AJ&K. Due to recent power tariff determination by Nepra; the rate charged from AJ&K was also increased. However, the AJ&K did not agree to the raise. A committee was constituted to resolve the issue. The AJ&K has not accepted the recommendations of a federal government's committee constituted by the President to settle the tariff conflict between AJK and Wapda (Dawn 10th August 2002). The committee had reportedly fixed the bulk tariff at Rs3.49 per unit, of which Rs2.44 were to be paid by the AJK government and the remaining Rs1.05 by the government of Pakistan, as subsidy. The last bulk tariff, reportedly approved by the government was Rs3.83 per unit, from beyond Feb 28, 2000, that included subsidy of Rs0.92 per unit of by the government of Pakistan. The government of Pakistan might consider paying to Wapda full cost of power delivered to AJK areas, by enhancing the rate of subsidy over and above the rate per unit AJK is able to pay.
ADDITIONAL GAS ALLOCATION FOR POWER GENERATION: The Chairman Wapda, after a meeting with the President, at Islamabad in June 2002 reportedly said that the government had approved a new strategy to generate electricity from hydel and coal resources to meet the shortfall through gas-fired plants. The meeting was also informed that while furnace oil prices increased by 148 per cent and gas by 105 per cent being supplied to Wapda in the last three years, overall electricity tariffs during this period increased only by seven percent. The President reportedly directed the Petroleum Ministry to make arrangements and meet the gas requirements of Wapda totalling 735 MMCF per day by December next year. While appreciating the achievement of Wapda by showing a financial turnaround, the President directed the Authority to pay more attention to the complaints of billings and breakdowns and to also pay hydel royalty to the NWFP. Additional gas allocation is also expected to have beneficial impact on the foreign exchange position of the country. Effort for gas explorations might also be redoubled with employment opportunities and economic development of the people from the prospecting areas.
SUPPLY OF POWER TO FATA AREAS AND RECEIVABLES: By end of 2001, Wapda receivables from FATA area had accumulated up to Rs 7.5 billion, despite the fact that Rs5 billion dues were picked up by the government of Pakistan. The tribesmen remained adamant to bear the cost of electricity they use and in this respect thwarted Wapda and NWFP government's joint moves of installing electricity meters, in tribal areas. In line with an understanding reached between the federal and provincial governments and Wapda, some 10000 bulk-supply meters were to be installed in the eight administrative units of Fata, including seven tribal agencies and Frontier regions. After one of the meetings, the government had issued instructions to the NWFP government thereby collection of electricity tariff would be the responsibility of the political agents of all the seven tribal agencies forming the Fata. Accordingly, the recovery system is being streamlined. However, some of the tribal people are still resisting the installation of electricity meters and the payment of electricity bills. The tribal areas are the most under-developed regions and the government might consider massive economic development assistance particularly in education, health, water supply, sanitation, etc so that the living conditions improve and there are more employment opportunities for the people.
WAPDA RECEIVABLES FROM THE PROVINCES: In end November 2001, the President reportedly directed all the governors to clear Rs36 billion provincial electricity dues by Dec 31, 2001 and reconcile disputed amounts with Wapda within 90 days of bill issue date. The President reportedly was chairing the meeting that was attended by four provincial governors, Chairman and members of Wapda, federal ministers and the concerned secretaries. The governors spoke of cash shortfall of their provinces and other outstanding issues with Wapda. It was said that, of the total Rs36 billion, the Wapda receivables towards four provinces amounted to Rs26 billion and Rs10 billion towards KESC. It was also said that huge receivables had created cash flow problems for the utility. It had to borrow high-cost, short-term loans to meet this Rs36 billion cash deficit. So if receivables were not cleared, Wapda would not be able to pay for fuel oil/ gas or to the IPPs and retire the short-term loans. In a subsequent meeting, the President directed Wapda to pay hydel royalty of Rs 4.1 billion to the NWFP during the month. It is believed that most of the matters have been resolved amicably.
To avoid further accumulation of Wapda receivables, the Sindh government reportedly authorised Wapda to disconnect the electricity of all government departments, educational institutions and residence of all officers on non-payment of utility bills. The Wapda could apply its authority from January 2002 if the bills were not paid in time. However, the Sindh government declared that courts, circuit benches, residences of the SHC judges, hospitals, offices of irrigation and power, jails, police wireless network and water supply and drainage offices would be exempted from this condition. Wapda is urged to complete installation of meters as per arrangements with the Sindh government.
FUEL OIL PURCHASE ARRANGEMENTS: Wapda had been getting fuel oil supplies through PSO. The relations between the two public sector giants were never close. Wapda would object to various charges collected by PSO or the rate quoted for the fuel oil. PSO had its own reason and justifications. The relations took a new turn when the government deregulated the marketing of fuel supplies. Wapda took the advantage and started purchases of fuel oil partly from Shell, on cash basis. Purchases from PSO that used to be on credit, were reduced drastically. Naturally, PSO was not happy at this and took up the matter with the higher authorities. PSO lodged a strong protest with the federal government, saying WAPDA had created imbalance in its fuel oil volumes and business operations. During low water months, Wapda's hydel power production almost stopped besides reduction in gas supplies. Thus, furnace oil requirement rose to around 200,000 tonnes amounting to around roughly Rs2 billion every month. This clearly shifted a big business of around Rs1.2 to Rs1.6 billion from PSO to Shell. Wapda and PSO have now come to terms and currently PSO quoted prices were lower than that of Shell. Wapda reportedly hinted of not accept fuel rates from IPPs that did not match fuel rates paid by Wapda because ultimately Wapda had to pay for the higher rates and then had to pass it onto the consumers. Recently PSO has won, on competitive basis, a Wapda contract for supply of fuel oil to Wapda.
NWFP ROYALTY CLAIMS AND THENEW HYDEL PROJECTS: On the issue of settling the provincial royalty on power production and payment of the electricity bills, NWFP and Wapda officials reportedly expressed strong divergent views in the high power committee meeting recently at Islamabad. The NWFP officials called for settling royalty matters first before undertaking new hydro electricity projects in the provinces. This would avoid any complication once the work on such projects is kicked off. It has been also reported in the press that the NWFP government has laid claim to over Rs298 billion against Wapda on account of net hydel profit arrears payable since 1973-74 financial year. NWFP is said to be of the view that its share on account of net profit should be calculated by taking Wapda's gross revenue as the base line. Presently, Wapda calculates NWFP net profit share without including surcharge and additional surcharge as parts of the gross revenue. The matters are highly sensitive and might be handled with equity and fairness to all parties. The federal government might like to advise the parties.
PROBLEMS AND CONTROVERSIES ON LARGE PURCHASES: Wapda purchases large quantities of electric meters and transformers, besides so many other items required for generation, transmission or distribution operations. While it is Wapda's stance that it has been encouraging the local electrical and other industries, there have been complaints that Wapda has been making purchases at exorbitant prices and passing the burden over to the customers. These procurement matters need to be sorted out and transparent policies adopted, both in its own interest and the interest of its local suppliers as well as the customers served. Now that there will be twelve corporations, it is trusted that the procurement functions shall be better planned and transparently executed / monitored.
WAPDA'S PROPOSED STUDY FOR COST OF POWER: Wapda through a notice in the Business Recorder dated 5th September 2002 has invited from local consulting firms, Expression of Interest (EOI) for determining the cost of electric power at various steps ranging from generation through different voltage levels down to the end user. A cost of services study manual has also to be prepared. These steps are expected to help Wapda further improve its workings and to have a scientific basis to negotiate power tariff for supply of power at different locations.
Wapda's senior management has been taking measures for bringing an improvement in its affairs and the overall service to its customers. Collection of arrears from provincial governments improved its liquidity and enabled servicing its short-term loans or pays the fuel suppliers. The savings achieved in the cost of fuel would probably help improve the power system. Its efforts for better tariff on bulk sale is in a way a service to the existing customers as Wapda might be able to continue with the existing tariff structure, without further support from the government. Wapda efforts have always not been fruitful but it has been pursuing the matters persistently. Any outstanding matters might be resolved in a conciliatory manner, fair to all sides. Improvement in procurement services and the carrying out of the proposed study of power cost at different locations is expected to further improve its performance and services. The government and the people are urged to also support Wapda when it is doing a good job.