June 10, 2002	Monday	Rabi-ul-Awwal 28,1423

There they go again. Wapda, which had earlier denied having filed and application for a further increase in electricity tariff, has finally been found to have submitted a petition, to NEPRA after all, on 27th March 2002.

It has demanded a hefty increase of 88 paisas / kwh on an average; and that too with retrospective effect from 1st April 2002. This is to cover a net financing gap of Rs55.5 billion up to the financial year ending 30th June 2003. The requested increase has been characterize as rationalization. Surprisingly even this increase does not make Wapda viable and leaves a deficit of Rs9.9 billion in 2001-02.

Wapda has increased tariff since 27th March 1999 to 10th May 2002 ten times During 2001 there was a total increase of 32 paisas. Next year 15 paisas increase was allowed. In the coming year, a hefty increase of 88 paisas has been demanded so that the deficit could be reduced but not eliminated. What can be gleaned from a complex set of tables attached without explanation, it appears that the percentage increase in average tariff level including hydel surcharge is 13.4 per cent in 2001-02 and 16.5 per cent the next year. In absolute terms the average tariff for both the years is 445.2 paisas. Thus the increase in year-end tariff level is 24.7 per cent.

Wapda’s petition for ‘rationalization’ of tariff is a follow up of an earlier request dated 13th Dec. 2002. The deficit for the year 2001-02 has been calculated at Rs20.9 billion and for the next year Rs34.6 billion. The widening deficit belies the claims of ever improving health of Wapda. Going by the track record, the estimates of Wapda for the next year are most likely to be missed. Wapda will provide no funding for the PSDP from its own resources. On the contrary, it will depend on government support of Rs13.5 billion in the first year and Rs22 billion the next year. It used to finance the PSDP to some extent in the past. thus the actual deficit is much larger than claimed in the petition.

Going by the tables attached with the petition, receivables, which were Rs. 39.7 billion in 2001-02, will, it is promised, be brought down to Rs. 28.5 billion in the next year, if the utility is to be believed. What variation on previous policy has been adopted to convince the consumer or NEPRA that the promised results will ensue? Total cash collection estimated at Rs187 billion in 2001-02 will decrease to Rs182.7 billion the next year, instead of increasing. That i an improvement indeed! Interestingly according to the World Bank covenant Wapda is to derive an income of Rs188 billion in 2001-02 and Rs227 billion the next year. The corresponding expenditure during the two years under the covenant is Rs181 billion and Rs222 billion. that takes care of the deficit. thus Wapda, which claims to be making frequent requests for tariff increases on the World Bank prodding, has completely disregarded its commitment to bring down its expenditure within the income it generates.

Recourse to periodic and frequent increase in tariff offers no solution to the structural problems, which flow from gross mismanagement in Wapda. Since the present management was inducted in October 1998 in Wapda by the last elected government, things have deteriorated considerably. The World Bank, in one its recent public statements characterized Wapda together with this KESC as one of the most corrupt organizations. This should come as no surprise. the last three years have witnessed a phenomenal degradation all around. Auxiliary and other line losses have been estimated at 24.6 per cent in 2001-02 and 23.1 per cent in the next year. The decrease in losses is claimed due to improvement in distribution. This claim is belied by utility’s own official publication for May 2001, which gives a rising trend in losses on account of distribution during the last three years. The figures for 1997 to 2000 are: 13.51 per cent 15.51 per cent 18.01 per cent and 17.44 per cent respectively.

Dawn in a stinging editorial of 13th May, 02 quoting from Wapda’s latest annual report stated that it has neglected repair and maintenance of its power plants and transmission lines. this happened because its ‘army led management decided to strip the engineers of the power to sanction repair work’. Consequently, a large number of its generating units are out of order or producing at much below par. A sample below should suffice:

Wapda’s total generation in 2001-02 is estimated at 59870 MkWh and during 2002-03 it will increase to 61631 MkWh. ‘Expensive’ private power purchase will decrease from 23916 MkWh to 21028 over this period. Ratio of private power with total generation will be 39.9 per cent in the first year and 34.1 per cent the next year. Ratio of private power cost, on the other hand, with total Wapda expenditure will be 61.2 per cent in the first and 57 per cent the next year. This suggests that Wapda will have either improved its generation or added to it through new power plants. Capacity payment will, however, increase from Rs64.8 billion in 2001-2 to Rs69 billion the next year. The increase in capacity payment is not understandable, as with the passage of time, the capacity payment to IPPs should go down due to retirement of their commercial loans.

Receivables, which stood at Rs43 billion in 1997-98, have increased to Rs54 billion in 2001-02. This includes Rs20 billion against private sector. In the previous year (2000-01) the receivables had come down to Rs43 billion from Rs62 billion in the previous year, but that’s no credit to Wapda as Rs18 billion were written-off by the government of Pakistan and Rs27 billion had been deducted at source from the provincial governments. receivables on private account have more than doubled from Rs9.7 billion on 30th June 1998 to Rs20 billion on 31st March 2002. The public relations department of Wapda keeps blaming government departments for increase in the receivables; but facts speak for themselves.

Non-tariff measures, which the utility promises to adopt to bring about an improvement in cash flows to the extent of Rs. 9.9 billion offer a promising start, provided the management displays an accurate understanding of the laws of economics and correct order of priorities. Obviously the proposed increase in tariff focuses on one side of the coin, because it presents a softer choice. Control of expenditure, which presents complex management choices, has been assiduously avoided so far. It is the expenditure, which continues to spiral out of control, that presents possibilities for some success. In the current year the expenditure is stated to be Rs200 billion, which will rise to Rs205 billion the next. although the increase is only 2.5 per cent per annum, it is because the present expenditure is too high. With falling income, one is expected to focus on expenditure. It is widely known that the utility is hugely overstaffed, especially at the top. Unfortunately the quality is equally depressing.

It is not the tariff, which can rescue Wapda from an imminent collapse. Its salvation lies in its immediate privatization. There is no scope of dragging ones feet about it. It is the mismanagement that underlies the crisis in Wapda. Professional management (it should not be confused with an engineering degree) should be inducted with a mandate to have it privatized. A time will come when there will be no buyer. A convincing case has been made out for a hefty reduction in tariff. With complete lack of understanding of complexities of management issues, total centralization of power has compounded the problem. As a result the administrative machinery is clogged and important decisions delayed.

The morale of Wapda employees has hit rock bottom and communication channels have broken down. They are mortified of their bosses and prefer to keep quiet rather than bring a brewing crisis to their notice. It is reported that about 250 engineers have either resigned or left on premature retirement. Draconian measures are adopted to take action against Wapda employees under dreaded section / rule 17(1) A of Wapda employees rules to summarily dismiss them without charge. Instead, people lacking merit and the spine are appointed; and ironically removed on second thoughts. Training has been neglected with serious consequences for the organization. Career planning has been thrown to the winds and appointments are made on the basis of whims. On the other hand, quite a few incompetent people has been inducted en masse thereby imposing a greater burden on Wapda’s weak financial position.

MOUs with the IPPs were revised during the later part of the previous government with a great deal of fanfare. It was claimed that a saving of $1.4b would have been achieved as a result of this effort. This gives an annual average saving of $70m or Rs4.2 billion, assuming a life of 20 years. Disregarding a detailed analysis for want of space including questions whether the dead units revived under the revised MOUs came on stream, consumers are entitled to know where have the savings gone, particularly when the organization has not been able to maintain its viability faced with a whopping deficit of Rs55.5 billion. That is despite full government backing to the organization including hefty write offs. As if the proposed increase and the previous ones are not enough, the government has determined to impose GST on all users of electricity and recover Rs. 80b, piggyback on Wapda consumers. That is 20 per cent of the maximum ever tax collection by the CBR. That is a sure recipe for driving the honest consumer out of the net by making electricity simply unaffordable. Both the utility and the CBR will be the losers, besides of course the consumer.

Instead the consumer has been burdened with higher and higher bill. Rising fuel cost is alleged to be the cause, although the price increase has not been much. According to Wapda publication of May 2001, average fuel cost / kwh rose from paisas 125.54 (1997) to 139.32 (2000) A typical bill of a middle class consumer presents an interesting comparison. In November 1999 for 514 units the bill was Rs1752 and two years later for almost the same 521 units, the bill was Rs2550 - 45.5 per cent higher. It is time the utility stopped deluding itself that it can perform miracles. It should make way for some competent professionals, who believe in privatization and put its privatization on fast track, and not use one subterfuge after another to delay it.