June 02 - 08, 2003

Transformation of Pakistan's power sector started in a big way in 1985 when it was decided to induct private sector in power generation. Until then Wapda and KESC were the only two public sector utilities involved in the generation, transmission and distribution of electricity. The Independent Power Producers (the IPPs) have gradually increased their share and now own nearly 25% of total generation capacity. Major part of the IPPs generated power is purchased in bulk by Wapda while the rest is purchased by KESC. The industry has also set up captive power plants with generation capacity in the range of 400 MW mainly due to more reliability of power and also as the self-generation cost is lower than that of Wapda or KESC. Despite carving out twelve companies (one transmission, three generation and eight distribution companies) out of its Power Wing, for all practical purposes Wapda still holds sway over matters pertaining to the generation, distribution and distribution in the country. National Electric Power Regulatory Authority (NEPRA) has been set up in 1997, to be exclusively responsible for regulating the provision of electric power services. As per arrangements with the World Bank, two generation and distribution companies of Wapda together with KESC are initially on the privatisation list. Privatisation process has already been initiated.

Wapda and KESC are facing financial problems due to losses mainly attributed to high generation cost and high transmission and distribution losses. It is felt that the federal government has been going out of its way to solve most of these problems by cash contributions. However, from a review of press reports for the past few weeks it is felt that Wapda also has certain tariff related or other issues with the provincial authorities or other institutions. All these issues need to be amicably sorted out in the best interest of Wapda as well as the consumers. Bilateral dialogue is the right course for resolution of the issues. The counter parties are urged to sort out all these issues through talks held in friendly atmosphere. Only certain difficult elements of these issues at all might be brought to the attention of the federal government. Some of the main issues are briefly discussed below.

The Provinces in General: Wapda at present has interaction with the provincial authorities at different levels. Wapda wishes to control electricity theft and take to task the people involved in this unhealthy practice. The provincial authorities can facilitate and support Wapda efforts in this regard. The provincial authorities also have some complaints about the electricity billing, the amount of dues to be received and particularly the way these amounts are recovered. Deduction of such amounts at source is not to the liking of the provincial authorities. Congenial relations must be developed by Wapda with all the provincial authorities for amicable settlement of issues without the intervention of the federal government authorities. Wapda authorities might consider taking steps to remove the impression with the provincial authorities that Wapda is as an organ of the federal government. Wapda can assist the provincial authorities in the proper staffing and the workings of the provincial power development boards. Different provinces are raising different demands on the federal government in matters covered under the concurrent list in the Constitution in order to have more say in these matters and also to reduce the actual or perceived sense of deprivation among the provinces. Electricity related matters specific to different provinces and / or the institutions are discussed below.

The Punjab: The authorities in the Punjab appear opposed to the idea of subsidising power consumers in areas where Wapda's distribution companies are facing heavy line losses due to various reasons. It has been reported in the press that line losses of all the five distribution companies operating in the Punjab were relatively smaller as compared to the rest of the three distribution companies. Therefore, the distribution companies with higher line losses are confronted with the loss situation. The generation and the distribution companies, when carved out of the Power Wing of Wapda, should have been properly capitalized by the government/Wapda. The capitalization could have been made proper by the government through restructuring of the debt and fresh cash contribution by way of equity but apparently this has been ignored to some extent. Had this been done properly there would have been less chances of disagreement on the separate tariff for the customers of different distribution companies. It has lot of merit when it is said that the uniform tariff is against the objective of creating separate distribution companies. Moreover, it might not been justified to require the honest consumers in the areas served by the five distribution companies to partly foot the bill of consumers from areas with higher line losses.

To amicably sort out the matter, the World Bank reportedly has proposed to the government that a Universal Obligation Fund (UFO) be created to keep the power rates uniform throughout the country for at least five years even after complete unbundling of Wapda. All power distribution companies might be required, under the proposed scheme, to contribute in the fund through a uniform tariff rate which would be used to restrict power rates of loss making companies from going up.

If separate tariffs were introduced for all the distribution companies, power rates for some distribution companies with abnormally high line losses could go up to unbearable limits. This would be socially unsustainable. It is, therefore, imperative that the whole issue might be examined thoroughly. The objectives of the review should be to save these distribution companies from financial hardship; avoid burdening the provincial government with payment of subsidy as well as to save the consumers from potential high tariffs of electricity.

SINDH: The Thar Power Plants based on local coal are under planning at the moment. Wapda has experience with coal power plants in the country and therefore is in position to contribute for realization of these power plants. Implementation of these power plants would give a big boast to the economic development of the area. It is said that these plants would be financed on BOT basis and therefore in due course of time requisite agreements shall have to be negotiated and executed with Wapda, the provincial authorities and other counter parties. This might perhaps be something new for the provincial authorities. At present some of the press reports suggest that the actual progress is slow due to which the preparation of the feasibility report by the Chinese might be delayed. The provincial authorities might consider availability and suitability of their own human resources for the purpose. Perhaps, it would be better if services of experienced experts from Wapda are obtained to coordinate with the Chinese and to train the local personnel in the handling of such large projects.

The NWFP: Wapda has been paying rupees six billion as net hydel profit on electricity generation from Tarbella to the provincial government of NWFP every year. The province depends greatly on these funds for meeting various development and operational expenses. Any deduction or adjustment by Wapda from this amount is not liked by the provincial authorities, which also lodge protests with the federal authorities. Reportedly, Wapda has recently adjusted at-source over rupees one billion from the net hydel profit against the electricity arrears payable by the provincial departments, autonomous bodies and local body institutions. The province considers such deduction as a violation of directions issued by the president and the prime minister as well as in contravention to the recommendations of the NFC award. The Wapda officials on the other hand consider at-source deduction being in line with decisions taken at high-level meetings. Whatever the legal or factual position, such adjustments may be sorted out amicably between Wapda and the provincial authorities through dialogue. Wapda may pursue the concerned departments who are in default of electricity dues and seek help from the provincial authorities in the matter. The at-source deduction or similar other action might be avoided as these cause feelings of deprivation among the people of the provinces.

BALOCHISTAN: The federal and the Balochistan government have been taking measures for developing the Gwadar Port, Gwadar City and Gwadar Special Economic Zone. For realizing these developments on timely basis, it is presumed that Wapda would be making arrangements for supply of reliable power in sufficient quantity. Details of actual progress are lacking. In this context, Wapda might consider taking proactive steps for ensuring regular supply of power to this area or any other areas in Balochistan as and when required. Arrangements for power supply and financing thereof can be made in collaboration with the federal and the provincial government authorities. Wapda's recent initiative of purchasing power from Iran for the coastal areas of Balochistan is a step in the right direction and would make tremendous impact on the well-being of the people.

The AJK: The AJK authorities have reportedly delayed the signing of the pact with the Pakistan government on compensation package against Mangla Raising Project, ostensibly due to differences with Wapda over power tariff and/or the basis of royalty. The President, it is said, had earlier allowed ad-hoc arrangements under which the AJK government were to purchase electricity from Wapda. Now the AJK government wants to settle the tariff issue on permanent basis. The AJK government reportedly is also not comfortable with the wording of the proposed clauses in the pact. The issues, if not resolved quickly, might delay the implementation of Mangla Raising Project, which would be detrimental to the interests of both AJK and Pakistan. Delays would only complicate matters and increase the cost of the project.

FEDERALLY ADMINISTERED TRIBAL AREAS (FATA): The Historically these are less developed areas of the country. The people also do not have the same exposure and the economic opportunities as that of the people from the settled areas. Wapda efforts for installing electricity meters at the premises of the consumers have been fiercely resisted in the past. Perhaps, there is need to create good will and Wapda, the power utility, can do so by first implementing certain general welfare projects for the people of the area. This should prepare the ground for constructive talks and the eventual installation of the power meters for supply of electricity at rates that are lower than the rates paid by the consumers in the settled areas.

PAKISTAN ATOMIC ENERGY COMMISSION (PAEC): PAEC is already producing electricity and supplying same to KESC and Wapda at rates agreed according to a certain formula. However, from the press reports it appears PAEC has the impression that it is not getting a just price for the electricity supplied. On the other hand Wapda feels the reliability of power supply from PAEC is not as is the case with the IPPs. PAEC plants have more outages and of longer duration. PAEC has been in the process of planning more generation capacity. In order to improve the relations between these two institutions, it is suggested that technical parameters of the existing/new power plants and the basis for the power tariff may be agreed through bilateral discussions. As more confidence is built up all arrangements for power supply may be brought under the fair and equitable arrangements agreed bilaterally.

THE NATIONAL ELECTRIC POWER REGULATORY AUTHORITY (NEPRA): At one time Wapda was dealing directly with the federal authorities. Wapda had lot of say particularly in the technical matter and in the determination of the tariff for different categories of customers. With the establishment of Private Power and Infrastructure Board (PPIB) under the Ministry of Water and Power and the NEPRA, Wapda naturally does not have the position as it had in the earlier period. Therefore, occasional complaints by Wapda against the determinations by NEPRA are understandable. Wapda might reconcile with the existing facts. Moreover, it is also a fact that Wapda still has a very important role in both water and power sectors in the country. Therefore, Wapda must develop congenial relations with NEPRA and improve its operations/procedures to earn the respect of these institutions as well as the consumers in general.