ISLAMABAD, Jan 30: Water and Power Development Authority (Wapda) would float Rs7 billion energy bonds in February to meet cash targets under $350 million structural adjustment credit (SAC-II).

Wapda sources confirmed that the utility had lined up Rs7 billion bonds to be issued through a consortium of banks led by ABN-Amro. The bonds would be floated by mid-February and would be used to meet financial targets under the financial improvement plan of Wapda.

The government has so far failed to meet major milestones of the SAC-II including financial improvement plan of Wapda, privatization of Karachi Electric Supply Company (KESC) and Faisalabad Electric Supply Company (FESCO), sources in the finance ministry told Dawn.

The ministry of finance and Wapda have blamed each other for non-compliance of the required steps during recent discussions with the International Monetary Fund (IMF) mission, an official dealing with corporate finance disclosed.

Under the SAC-II conditionalities, the government will have to maintain full adherence to its financial improvement plan for Wapda and its corporate successors (distribution and generation companies). The plan needed to comprise reduction in arrears of Fata and public sector, reduction in line losses, tariff increase etc., a finance ministry letter to secretary water and power said.

The plan would have then led to the achievement of the financial targets of a debt service coverage ratio of 1:2 at the end of fiscal 2002-03 and 1:5 at the end of fiscal 2003-04. As a result, Wapda would not have financing burden on the budget; all the while the power sector financing needs would also have been fully consistent with the agreed macroeconomic framework.

The unbundling of Wapda power wing would have been fully completed by end 2002. The new corporatized entities would have been functioning in an autonomous manner under professional managements, the letter said.

The sources said that Wapda chairman had told the IMF mission during recent meetings that finance ministry had withheld its tax refunds and released less than agreed public sector arrears to show its higher revenue figures.

The IMF mission was told by the Wapda chief that the finance ministry had provided only Rs9.5 billion against an agreed bridge financing of Rs11.5 billion during 2001.

Wapda also disclosed the finance ministry had withheld Rs4.5 billion GST refund of Wapda to keep the deficit on the lower side and did not allow required tariff increase of 58 paisa under structural tariff and 30-paisa under fuel adjustment mechanism as agreed with the World Bank and the IMF.

Under an understanding with the World Bank, the government had agreed to increase power rates by 58 paisa in July followed by quarterly reviews under the furnace oil adjustment mechanism.

The National Electric Power Regulatory Authority (Nepra) had increased the tariff by around 47 paisa per unit but that too was reduced by 20 paisa per unit on the directives of President Pervez Musharraf.

Wapda has also told the IMF mission that its public sector arrears which had to be recovered by the finance ministry had also increased to more than Rs30 billion as against Rs20 billion last year and out of these arrears only Rs14 billion were provided to Wapda.

Wapda advocated that it could not meet its targets under the financial improvement plan mainly because of above mentioned steps and also failed to reduce line losses to 23 per cent because there were no financing arrangements to reduce losses.