New boards for Discos

Published October 6, 2011

The selection of CEOs and CFOs would be made in a couple of days in consultation with recently appointed private sector members of the board of directors of the distribution companies. - File photo

ISLAMABAD: Having wasted over Rs1 trillion in three years through subsidy injections without creation of fresh assets, the Cabinet Committee on Restructuring (CCoR) led by Finance Minister Dr Abdul Hafeez Shaikh on Thursday created a holding company and finalised its board of directors to restructure four generation companies of Wapda and select private sector management contractors for the generation plants.

A senior government official told journalists that the members of the holding company were drawn up from leading private sector entrepreneurs of known integrity to look after the affairs of four generation companies for the time being and effectively finalise management contracts for nine power generation plants. Their names would be announced after formal approval of the prime minister in a couple of days.

The committee also approved the names of board of directors of two distribution companies Quetta and Sukkur of Wapda and sent to the prime minister for formal approval and notification, a senior government official told journalists after the meeting of the CCoR.

He said the committee also constituted for a transitional period of three months a board for the Central Power Purchase Agency (CPPA) as successor entity of Pakistan Electric Power Company (Pepco) that would stand effectively abolished by October 31, 2011.

It was decided that two representatives from government sides (one each from the ministries of finance and water and power), two from private sector, two from distribution companies and two from consumer side would be included in the board.

The committee also discussed the appointments of chief executive officers and chief financial officers in distribution companies and decided that about 200 applications received for these posts should be scrutinised and best candidates selected within a period of two weeks. Comparatively better managed companies like Islamabad and Lahore Electric Supply Companies have attracted highest number of applicants respectively.

The selection of CEOs and CFOs would be made in a couple of days in consultation with recently appointed private sector members of the board of directors of the distribution companies and then panels of selected candidates would be sent to the prime minister for approval in three days, the official said.

The key objective of the exercise was to keep the ministry of water and power away from the operational functions of the generation and distribution companies in view of inherent lethargy in the government sector and avoid conflict of interest.

The idea was to give confidence to the people and multilateral agencies like the Asian Development Bank to provide funding for the power sector rehabilitation.

The official said the loan programmes agreed with the multilaterals would be front-loaded with corporate governance and then injection of fresh investment to ensure that once the corporate debt issue was resolved it did not recur again and again.

The official confirmed that the government had injected over Rs1 trillion in these entities over the last three years but the circular debt continued to recur because reforms were not pushed vigorously.

He said the chief executives and chief financial officers of distribution and generation companies of Wapda would also be renowned personalities of integrity and qualification to get the ministry of water and power out of the power sector and accelerate the process of reforms.

The official said it was not yet clear how much the government may have to inject in the power sector for its revival because the exercise was still continuing. He said the receivables and payables of the distribution companies were almost similar which meant that very limited resources would have to be arranged from outside if recoveries are made from government departments, provinces and private sector defaulters through improved corporate governance.

Simultaneously, the regulatory management would also need to be improved, which for simplification of tariff setting mechanism and only then it would be possible to ascertain the requirement of capital injection. Under one estimate, the government may have to inject Rs484 billion, of which about $2 billion (about Rs175 billion) was expected to be provided by multilateral agencies.

At the same time, the government will have to take over about Rs400 billion borrowed from the banking sector through long term sale of investment bonds at about 12.5 per cent interest rate. This restructuring, the official said, would provide a lower interest payment of about Rs15 billion when compared with existing arrangement.

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