DISSOLUTION OF PEPCO

S.M.ABBAS ZAIDI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Oct 18 - 24, 2010

The government has recently dissolved the bleeding Pakistan Electric Power Company (Pepco) and at the same time pushed up electricity prices by another two per cent. The dissolution of the 18-year-old company clears the way for the restoration of the currently suspended penultimate tranche of $11.3 billion IMF bailout programme.

PEPCO SYSTEM

YEAR ANNUAL CAPACITY PLANNED (MW)
2009-10 1,200
2010-11 2,966
2011-12 1,357
2012-13 2,140
2013-14 1,426
2014-15 1,060
2015-16 1,959
2016-17 2,597
2017-18 2,596
Total 17,301

The dissolution of Pepco will also pave the way for an independent power tariff regime for each distribution company aimed at equalising the difference between the cost of electricity generation and end-consumer tariff. The difference stands at around three rupees per unit.

As a first step, the government announced to increase the electricity prices by another two per cent, resulting in a four paisa to 26 paisa per unit hike in tariff, depending on the consumer category.

With the unbundling of the umbrella company (Pepco), the government also announced financial and administrative autonomy to eight power distribution companies during the next six to nine months.

The liberalisation has been carried out under the umbrella of the IMF. The last leg of the energy sector reforms would be the setting up of independent power tariff regimes, a way to kick the government out of the business of controlling tariffs to appease voters by picking up the subsidy.

In the first instance, the government would give administrative and financial autonomy to four efficient power distribution companies i.e. Islamabad, Faisalabad, Lahore, and Gujranwala.

Nonetheless, experts doubt if the unbundling of Pepco would stop the bleeding. The root cause is the subsidy the government is picking on account of difference between the costs of production and selling. These subsidies have been accumulating under the head of fuel cost and line losses due to the inefficiency of the power distribution companies.

The government's decision to increase power tariff is tantamount to penalising the consumers for the inefficiency of the distribution companies whose heads are still on lucrative posts despite failing to reduce the losses, the main cause of skyrocketing electricity prices.

The Pakistan Electric Power Company (Private) Limited had earlier been entrusted the task of managing the transition of Wapda from a bureaucratic structure to a corporate, commercially viable and productive entity. The specific objectives of Pepco was to stop load shedding, constructing new grid stations, reducing line losses, minimising tripping and theft control, revamping of generation units and improving customer services and development of an integrated automated power planning system for generation, transmission and distribution to ensure system stability, fault isolation and upgrade relying, metering and tripping system at NTDC as well as discos level.

The restructuring programme of Wapda's power wing was based on the new strategic policies of the government, and endorsed and supported by the donor institutions.

PEPCO THERMAL POWER CAPACITIES

TPS Jamshoro 655 MW, GTPS KOTRI 127 MW, TPS Guddu 839 MW, TPS Quetta 25 MW, TPS Muzaffargarh 740 MW, NGPS Multan 47 MW, SPS Faisalabad 70 MW, GTPS Faisalabad 200 MW, FBC Lakhra 30 MW (Power Stations at Panjgur and Pasni were shut long ago). Total Pepco thermal capacity is 2733 MW. Due to various reasons, most of the plants have de-rated drastically; many have been decommissioned in the last ten years, while most of these were forced to use RFO as fuel against the denied gas, which led to reduction in capacity and lesser availabilities.

Pepco on its own had undertaken a huge rehab programme containing seven modules at a cost effective price of US$169 million, which would result in a recovery of 1015 MW of the lost capacity. These modules primarily included rehabilitation and repowering of public sector Gencos. Out of these, the first of the modules have been completed with a recovery of 300 MW of power, while the next four were in various stages of completion under Pepco and the USAID. Government for completion by the end of 2012 will take over the leftover modules.

The long gestation is because of the requirement to lay off the machines in a staggered manner. On the other hand, had extra generation capacity been available or the demand been low, the rehab could have been taken up in hand within the year or so.

CONCLUSION

Pepco had been facing huge losses and its circular debt was Rs400 billion. Therefore, the dissolution of Pepco was imminent.

The government has recently increased the electricity prices, which would be effective from this month, the first day of the second quarter of the current financial year. With the latest surge, the electricity prices have increased by 70 per cent since September 2008. Despite increasing the tariff, the government was still bearing the difference between the cost of electricity generation and the end-consumer's tariff.