INTERVIEW WITH ENGR. MA JABBAR

FORMER CHAIRMAN SITE ASSOCIATION OF INDUSTRY

KHALIL AHMED, SENIOR CORRESPONDENT
(feedback@pgeconomist.com)
Oct 18 - 24, 20
10

Engr. M A Jabbar is qualified engineer with post graduate specialisation in power systems with over 30 years exposure to industry and business. The other pursuits relate to active participation in affairs of trade bodies, which acknowledged him as Vice President of Federation of Pakistan Chambers of Commerce & Industry and Chairman SITE Association of Industry.

He has held/is holding the following positions:

Director BOD SSGC LTD

Director BOD Export Processing Zone Authority (MOI&P, GOP)

Director BOD PSQCA MoST, GOP

Member National Council Science and Technology [NCST] (Chairman Prime Minister of Pakistan)

Member of Pakistan Council of Scientific & Industrial Research (PCSIR)

Member Task Force on Industrial Policy (MOI&P) GOP

Director BOD Sindh Board of Investment

Director Sindh Public Procurement Regulatory Authority (GOS)

Director North Sindh Urban Development Service C. Ltd (GOS)

Member PPP Policy Board Govt of Sindh (GOS)

Member Task Force for establishment of Sindh Revenue Services (SRS) GOS

Member Shaheed Benazirabad Industrial Estate Development (GOS)

Member Advisory Board ADB - FICCI "Harnessing Business Opportunities in South Asia"

Member Executive Committee, Chairman of various committees in FPCCI representing private sector in trade and industry during consultation with public sector.

PAGE: IT WAS ANNOUNCED IN APRIL THIS YEAR THAT THE GOVERNMENT WOULD INJECT RS116 BILLION INTO THE POWER SECTOR BY JUNE TO LIQUIDATE THE OUTSTANDING CIRCULAR DEBT. THE MEASURE WAS EXPECTED TO REVIVE PART OF THE IDLE GENERATION CAPACITY - TEMPORARILY. WHAT ARE YOUR COMMENTS?

ENGR. MA JABBAR: The situation has to be analysed in the dynamics of the continuation of the weaknesses, which power sector is inheriting and does not appear to be willing to dismantle. The reforms giving birth to the constitution of regulatory authorities, in applied perspective herein Nepra (National Electric Power Regulatory Authority) also failed to tame the Wapda, later becoming known as PEPCO further unbundled as to be identified as Discos and Gencos. This decentralisation without structural reforms and HR changes remains to be of no significant servicing as to the required changes in efficiency, transparency, and corruption level. Nepra in its mandate carries a lot of thrust for implementation to ensure that performance of Discos and Gencos. The other umbrella or supporting organisation by virtue of their statutory obligations such as PPIB and policy boards and cabinet committees on energy crises and other issues relating to power has also not produced any result which could be claimed by the common man or the players of economy. The generation capacity which was expected to be closing the gap between demand and generation due to incoming rental powers resulted in reduced spacing of government to focus on the issue of making better provisions for the quashing of inter circular debt existing in the chain from supply to the generation. The budget deficit, IMF conditions and others reasons also always created reasons for government to have diluted focus on the need to settle this issue. All the entities involve except KESC are public sector organisation so under the understandably available guarantee of government of Pakistan, they continue to tune themselves for their self-destruction. However, the circular debt is not the only reason for the questionable performance of generation but internal weaknesses would have more dominant character towards ailment of continued bad performance of power generation. KESC alone defaults Rs21 billion receivable for SSGC and a very good company like SSGC will become sick if its more-than half of the receivable remain questionable or convert into long term based receivables eroding its market rating for borrowing needs. No consolidated measures are on the sight except the advice by the donors to sale the electrical units with reduced subsidy levels. I am of the view that the losses should be limited to 10 per cent while determining the selling tariffs. The rest means companies should improve or otherwise should suffer or go out of the business. After all, private sector falls and does not get any support during the period when its liabilities are more than assets but the same yardstick does not apply on public sector generation companies as they continue to be bailed out and without the need to restructure and change the present HR which cannot do anything better than what we call worst they have performed.

PAGE: HOW COULD THE GOVERNMENT BE ABLE TO WIPE OUT THE CIRCULAR DEBT PERMANENTLY AND BRING DOWN POWER TARIFFS?

ENGR. M A JABBAR: If we recall, the privatisation of KESC was object to allow sustainable growth of power generation and distribution in the private sector with capping on the tariffs for 7 years. Government provided all the support to create an environment for sale. Today, KESC has a difference of Rs40 billion between assets and liability. The privatisation of Discos and Gencos and going in the capital market options are the probable solutions but the questionable privatisation and ill performance of regulatory authorities together don't promise a good future in the power generation. The pressure will continue to mount and the government with continued confronting of the problems such as earthquake, floods, leftover spill of Rs777 billion borrowed from central bank during the termination period of General Musharraf together has casted a shadow which appears to be hardly removable with the present available domestic resources. The re-appropriation and re-allocation of budgetary directions remains the main obstacle for government to wipe out the circular debt. The health and financial pictures of the power generation in public sector and power distribution remains scary and the government moves to off load the shares for market may not generate enough to correct the present circular debt for all time to come as the share value of such organisations remain (unwanted). To bring down the power tariffs, I had suggested the former Finance Minister Shaukat Tareen to take out all the losses during the determination of the power tariff. The actual power tariff can be worked out when you exclude the claimed losses to the tune of 40 per cent about, case of KESC and so case of other power utilities is no different. The purchaser of electricity should not be penalised for inefficiency and corruption and on account of those who are less professional and have learnt the typical bureaucratic style which is in the blood for having been associated to white elephant like Wapda in total control of water and power resources of Pakistan, with least to claim anything good to register.

PAGE: THE AMOUNT OF CIRCULAR DEBT BETWEEN DIFFERENT POWER PRODUCING INSTITUTIONS HAS REACHED RS235 BILLION. WHAT ARE YOUR VIEWS?

ENGR. M A JABBAR: This circular debt acknowledgement should be through availability of government guarantee whether discharges or not. The debt between public and private sector should not be classified as circular debt. Let us take the example of SSGC, which is dealing with private sector power producing company like KESC. The utility does not allow any industrial undertaking to continue using the power beyond single day of the due date of the payment but uses raw materials as gas provided by SSGC to the tune of 3-4 billion rupees a month. The dues during 2009 were about Rs10 billion and they have picked up level of Rs21 billion, half of the receivable of SSGC. GOP is seized of the situation whereby a good company may join the club of sick entities like PIA, Railways and public sector power utilities if GOP does not intervene to keep the SSGC healthy. Our diluted focusing on the corrections remain the reason for addition of circular debt between different chain links of power producing sector and it is strange that the virus of the same has also infected in privates sector i.e. Karachi Electric Supply Company (KESC). Regarding the level of Rs235 Billion, it is a 1/8th of the revenue collections and in the present situation, the arithmetic's appears to be only available for working out on a consolidated basis as how this should be educed instead of allowing it to be increased.

PAGE: IT IS BELIEVED THAT IF THE GOVERNMENT DOES NOT SOLVE THE PROBLEM ON URGENT BASIS THEN THE AMOUNT OF CIRCULAR DEBT COULD REACH RS300 BILLION BY THE END OF THIS YEAR. YOUR COMMENTS:

ENGR. M A JABBAR: I would reiterate that government should form a committee to work out a strategy as how to arrest the present level of circular debt and in no way the increase would be in the interest of best practices and as well as in the working and rating of the companies in the chain.

PAGE: THE ELECTRICITY TARIFF HAS BEEN INCREASED MANY TIMES SINCE MARCH 2009. WHAT ARE YOUR VIEWS?

ENGR. M A JABBAR: One would wonder as how the Nepra is acting/functioning in departure of its given mandate. One can say that in total defiance of the actual situation Nepra acts, prefers to act and this gives rise to sustain its claimed position of being independent and only answerable to the cabinet. Let me give you an example, Nepra has allowed fuel adjustment surcharges to KESC which has increased the industrial overall payments against use of electricity by 14 per cent September 2010 as compared to the preceding one for the same use of units. This bill is now rising and likely to be up by 29 per cent in coming month billing with the benchmark as stated above. One wonders as how fuel adjustment surcharges are allowed when the supply of Pepco to KESC is based on energy mix which contains up to 40 per cent hydroelectricity. Without observing the transparency to show as how these computation has been made, industry has to keep on giving rising bills on monthly basis on account of only one component of fuel price adjustment (FPA) we are discussing here. The electricity tariff is rising and the main computation in increasing the tariff is uncontrolled losses on account of again questionable working of power generating and distributing companies. The predictable trade and manufacturing cannot construct itself on such increased power tariffs which have their dynamics of changes monthly and as and when Nepra would deem necessary to favour the utilities. Nepra has never considered in improving the performance of Discos and Gencos and I have attended such meetings where we finalised the directions to do so but the main job of Nepra is to collect heavy fees in granting of the licenses. Further Nepra removes the clauses of agreements made between parties and GOP through privatisation commission. In my opinion, Nepra is not competent to do so as the agreements between companies and government of Pakistan cannot be amended by Nepra. Further the amendments again are not by consensus but by simple majority voting of members of Nepra, which further questions as how decision are made against the national interest. This trend of increase in power without implementation of national energy conversation plan and improvement of Discos and Gencos in context of their ballooning losses is a terrible situation to compromise.

PAGE: DO THINK OIL FIRMS WOULD NOT BE ABLE TO ENSURE SMOOTH SUPPLIES IN THE DAYS AHEAD AND INDEPENDENT POWER PRODUCERS MIGHT RUN AT LESS THAN THEIR GENERATING CAPACITY BECAUSE OF FINANCIAL CRUNCH TO PURCHASE FUEL?

ENGR. M A JABBAR: I do believe that oil firms will have problems to honor the letter of credits and in certain exigencies on the GOP's guarantees they might be able to secure oil against no payment from IPPs due to inter circular debt between GOP and IPPs. IPPs have already shown displeasure and they might run at less than their generating capacity because their agreements are so classic that even when they are not producing they have certain clauses which create obligations for the GOP to pay which is more appropriately called takeover and conditions of finances in case of no takeovers. The agreements with IPPs are also not transparent and not in the national interest but who cares. Ministry of petroleum and natural resources makes the final stamping. The agreements are never made public before giving final stamping. The interest of the common person of this country should be protected as his efforts to generate taxes and leave the future capacity in the form of new generation to work and pay should be the fundamentals of consideration to perform transparency.

There is a default and the situation of the default in the past only changes itself in terms of level of settlement in the energy sector. The only answer is to consolidate all efforts and consider it as the major agenda for finding a probable solution not without forgetting that inefficiency, corruption and non transparency would be the forth running scheme for resolution during taking of measures as without this correction, it will be again an adhoc measure as the sustaining of the desired results is subject of structural reforms in the power generating companies.