ISLAMABAD, Jan 5: Electricity-deficient Water and Power Development Authority (Wapda) is facing a cash shortfall of Rs84 billion (1.16 per cent of the GDP) this year which will eventually be bridged up through a higher electricity tariff, commercial loans and budgetary support in the shape of deferred debt-servicing, it is learnt.

The utility's current electricity shortage of about 1,000MW may touch 2000MW in peak summer this year when its overall system demand rises to about 14,500MW, according to Wapda sources. The current wave of loadshedding would fluctuate until March 31 and then resume in May onwards.

The cash shortfall has increased, in absolute terms, from about Rs30 billion in 2002 by 180 per cent despite a Rs100 billion support by the federal government in the form of subsidies, deferred debt-servicing and equity injections. From another perspective, the cash shortfall has increased from 0.8 per cent of the GDP in 2002 to 1.16 per cent of the GDP this year.

"This poses a risk to the federal budget," said a finance ministry official.

The sources said that Wapda's overall cash shortfall, which stood at Rs56 billion on June 30, 2006, had shot up by 50 per cent largely because of jump in its fuel oil consumption by about 80 per cent to eight million tons from last year's 4.5 million tons. This alone is expected to increase Pakistan's oil import bill by more than $1 billion to $7.5-7.8 billion compared with last year's $6.5 billion.

When contacted, Wapda's member finance Imtiaz Anjum told Dawn that the shortfall had originally been estimated at Rs90 billion for the current year. This projection had since been lowered to Rs84 billion because of a decline in furnace oil prices from about 21,500 per ton to about Rs20,000 per ton, he added. He, however, explained that even the new figure was a projection based on some assumptions and might turn out to be different in the end.

He declined to specify various loss-making areas resulting in financial gap but said most of the input costs had gone up, except in case of tariff and revenue generation since November 2003. Resultantly, the cost of service had significantly outstripped revenue collection, he added.

For example, he said, the Wapda's per unit cost averaged Rs4.75 and was much higher than sale rates of about Rs4.10 per unit. The tariffs remained frozen since November 2003 but the salaries of the staff had registered 60 per cent cumulative growth since 2001, he added.

He said the federal government had taken up the tariff revision with the National Electric Power Regulatory Authority (Nepra) but he was not aware of the details because Wapda did not file any petitions for the tariff increase.

Sources in the finance ministry said the government was currently assisting Wapda in negotiations with various banks meant for arranging Rs45-50 billion that would be available to it over a period of four to five years on federal government’s guarantee.

A Wapda official said that among other reasons non-recovery of about Rs50 billion arrears from Fata, Peshawar and some other public-sector consumers was a major factor contributing to Wapda's cash shortfalls resulting in bank borrowing with an additional impact running into billions of rupees.

In addition, Wapda was facing a loss of another Rs55-60 billion on account of system losses which continued to be in the range of 23-24 per cent despite a lot of efforts and investments to improve the system. One per cent loss in Wapda translates into a financial loss of Rs2.5 billion per annum. Similarly, Wapda payments to independent power producers (IPPs) also surpassed Rs100 billion per year.

"Wapda's financial performance has been shaky over the past years and has sharply deteriorated this year," said an Islamabad-based representative of a multilateral agency.

Some of the factors contributing to Wapda's continued poor performance is attributable to weak bill collection, including from the public sector; high levels of transmission and distribution losses due to theft and leakage; inadequate tariff adjustments; increased purchases from independent power producers, including payments for large unused generation capacity; and a decline in the share of hydropower generation.

A recent report by the International Monetary Fund (IMF) said that reform of the power sector had stalled and the schedule of higher regional electricity tariffs had not yet been enforced. Completing the reform of the regulatory and tariff framework for the power sector would improve productivity, increase public-sector savings and enhance the prospects for privatisation of power companies, it added.

The World Bank has also said that Pakistan's power-sector problems posed an enormous challenge for the government, requiring considerable political and financial resources to resolve.

"However, slow progress in implementing power-sector reforms is increasing the losses of the power system, further complicating the challenge," it observes.

The bank has recommended setting up of an appropriate pricing structure for distribution companies to support sector restructuring, to facilitate better targeting of subsidies and to strengthen operational performance by reducing theft and losses and completing the unbundling of Wapda into separate transmission and distribution companies while continuing with the privatisation of generation companies.

The cash shortfall is a difference between the total revenue collection and cash required to meet expenses for fuel, private power purchases, debt-servicing, salaries and other miscellaneous expenditures.