January 3, 2006	Tuesday	Zilhaj 2, 1426

ISLAMABAD, Jan 2: The federal government has decided to take over Rs87 billion worth of direct shareholding in eight distribution companies of Wapda as equity to improve their financial health and make them fully independent from Wapda control.

The government has held Wapda responsible for mismanaging financial health of these companies during the last six years, resulting in regular tariff increases.

“Analysis showed that much of the cause of the dismal financial picture of these companies was ad-hoc and arbitrary procedures adopted by Wapda in allocation of financial assistance received from the federal government since 1999”, said a case prepared by the ministries of water and power and finance.

Official documents available with Dawn suggest that as a restructuring of balance sheets these companies would become profitable and their shareholding would stand transferred from Wapda to the federal government.

The transfer of major shareholding in Wapda companies to the federal government has been made on the basis of two reasons. First, with Wapda’s equity, these companies were to remain subsidiary of Wapda and negate the purpose of restructuring and unbundling Wapda into independent corporate companies. Second, the equity and deposit for share were made as a result of debt to equity swap carried out by the federal government, therefore equity in these companies should be in the name of the government and not Wapda.

With this restructuring in the balance sheets of distribution companies (Discos), their equity position has improved significantly except for Peshawar and Quetta electric supply companies, which is still below the minimum requirement of 20 per cent equity as per the central bank’s prudential regulations.

To meet SBP regulations, the government has decided to convert the debt of Qesco and Pesco of about Rs2.2 billion into federal government’s equity.

The eight distribution companies of Wapda are currently incorporated as public limited companies and all of them have a poor financial health. The un-audited provisional balance sheets as of June 30, 2005 depicted that their equity position was lopsided and six out of eight Discos have negative equity.

As a result, these companies were unable to raise further debt from the commercial sector or the general public for crucial investment required urgently for pursuing energy loss reduction and expansion of existing transmission and distribution system.

Documents suggest that Wapda received an amount of Rs122 billion since 1999 as financial help from the federal government in the form of waiver on debt service liability and cash development loans. This was reflected into Wapda accounts as equity of federal government.

Of this total, only Rs35.2bn pertained to Residual Wapda for hydro electric component. An amount of Rs36.4bn was passed on as loan reduction and Rs18.3 billion as equity into balance sheets of corporatized entities.

Since Wapda had paid the debt service liability on behalf of corporate companies, an amount of Rs32bn was being reflected into their current accounts as “payable to Wapda”. It has now been decided to convert this Rs32bn into the federal government equity in the form of deposit for issue of shares of respective distribution companies.

Similarly, National Transmission and Dispatch Company (NTDC) constructed Rs38bn worth of assets during 1999-2005. This included Rs15.2bn financing by federal government loans and Rs18bn through Wapda’s self-financing and was shown as “payable to Wapda”. It has now been decided to convert this Rs18 billion into the federal government’s equity. A difference of about Rs4.7bn in assets would be reconciled later and converted into equity.