THE CORNER-STONE of the present government’s economic programme, is the revival and development strategy for reform and restructuring of the power sector, specifically, Wapda’s power wing and privatization of the KESC and the distribution (DISCO’s) and the generation companies (GENCO’s) of the Wapda.
Much has been achieved in the past two years with the NEPRA gearing up to enforce a regulatory regime and the PEPCO putting the much delayed reform programme of the Wapda’s power wing on the track.
Unfortunately, due to inherent resistance to reforms by Wapda, implementation of the several requisite actions has been slow, whereas on certain key issues, Wapda has back-tracked from the agreed objectives. The over-all power sector (Wapda, KESC) constitutes the largest public organization with combined revenues of about Rs225 billion. It is thus imperative that action be taken for effecting the GOP strategy and the reform programme for moving the power sector towards its full corporatization and commercialization.
A serious dilemma, which needs to be resolved is the non-acceptance of the NEPRA regulatory framework by Wapda, which has resulted in open conflict on vital issues of tariff, licensing, SPP’s market structure and operations.
The NEPRA, the GOP’s regulatory authority, has been entangled in numerous legal petitions and court cases by DISCOs. This has created an uncertainty, which is detrimental to the reform and the privatization process. The role of PEPCO has also not been fully effective, contrary to the objectives of the GOP’s strategic plan of 1993.
PEPCO management having been taken over by Wapda has resulted in a direct conflict of the objectives of restructuring of the power Wing. Wapda which is set on its monopolistic workings cannot be expected to have the intent to carry on the reform programme, or to support the privatization policy. Moreover, the essential actions by PEPCO and NEPRA for the setting up of a competitive market structure have been stalled, due to disagreement on the sector model, market structure, road map and the time-frame.
Meanwhile, there is a huge public uproar against high tariffs, false billings and inadequate service quality. The GOP policy and de-centralization is not being effectively implemented and there seems clear efforts to maintain a status quo. Wapda openly attributes its problems to the CBR, the MOF and other departments/ministries.
There is confrontation with NEPRA and various government departments, contractors, fuel/gas supply companies, industrial consumers, private power generators and the public at large.
Incorrect application of NEPRA tariff determinations have resulted in billing confusion to various classes of consumers who have filed cases in the courts and have obtained stay orders.
With focus thus diverted, due importance and attention has not been given to crucial matters of power system reliability, and bottle-necking problems. An obvious indicator is the two- system level collapses on the 500 KV and 220 KV national grid which led to major shut downs in 2001, and ultimately to acute damage to the power-system as well as to the national economy.
Even now several crucial segments of the 500 KV transmission system are operating on single contingency, which in the event of a simple/routine tripping can result in system overload and possible cascade tripping or even system collapse. System planning studies, stability analysis, transient fault simulation and adequate system protection measures have not been taken as per modern practices.
Further, the poor state of maintenance and lack of timely upgrade of generation facilities (GENCO’s) has resulted in degradation of capacity by as much as 30 per cent. Consequently, more expensive power has to be purchased from the IPP’s thus increasing average power cost. Additionally, the national transmission (NTDC) and distribution system (DISCO’s) have not been adequately upgraded to handle the total power generation.
Due to transmission system constraints maximum power dispersal is limited to about 11,000 MW - 12000 MW, whereas total peak installed generation capacity is 15,000 MW. As a result the installed capacity of the IPP’s is mostly under-utilized, whereas full capacity payments at 60 per cent output level have to be made as per the PPA signed by the previous governments.
With further delays in project implementation and lack of funding for system upgrade, the nation could be faced with load shedding at peak loads, possible system collapse and breakdowns as early as mid 2003.
In the meantime, Wapda continues to be faced with perennial cash flow problems. High capacity and energy payments (more than 50 per cent of sales revenue) are being made to the IPP’s, whereas Wapda is unable to distribute and sell the available energy due to high energy charges, anti-market tariff structure based on outdated demand suppression model and poor demand side management.
It is interesting to note the large surplus capacity gaps in the generation — demand figures in the accompanying table for the recent summer and winter peak days. The high peak power demand clearly indicates the need to levelise the consumption pattern through better load management and to also increase average demand during off-peak (midnight to 6:00 am) and office/business hours (8:00 to 4:00 pm) through tariff rationalization and special incentives/tariff reduction in off-peak hours.
* Available capacity is based on average 80 per cent plant availability in summer with hydel operating at near capacity level. For winter months there is an overall reduction of about 2000 MW in available capacity due to low hydel output, which is only partly compensated by GENCO and IPP’s thermal plants.
As is evident from the above generation levels, since Wapda’s own generation facilities (GENCO’s) with installed capacity of about 4,900 MW, are only able to operate at reduced levels, expensive IPP power has to be purchased thereby increasing the tariff level for consumers. It is clearly evident that in both summer and winter, there is available surplus capacity at peak load of about 1500 MW - 2000 MW and of about 4000 MW from midnight to 4:00 pm (2 work shifts for industry).
Herein lies a clear opportunity to provide low cost energy at marginal cost to industry and agriculture for effecting efficient and cost competitive production. While on one hand there is unsold surplus capacity resulting in revenue loss of billions of rupees, for the current fiscal year an astounding net deficit of about Rs35 billion has been forecast by Wapda due to various factors such as high fuel cost, unfavourable energy mix, non-payment by provincial governments/certain federal agencies and above all, overall system losses and theft of about 25 per cent. GOP/Budget support has been solicited, which is not possible due to other fiscal constraints.
The theft/loss reduction efforts after initial success now seem to have stalled. Whereas international benchmarks for transmission and distribution losses are in the range of 8-12 per cent, in spite of efforts towards technical improvements and theft control, Wapda still is faced with extremely high theft / losses of about 25 per cent. Even at current loss/theft level with sale of additional 1500 MW to 2000 MW power additional revenues of Rs 2-3 billion/month can be generated, greatly alleviating the financial/cash flow crunch.
Whereas overall revenue and arrears collection has shown marked increase in past 2-3 years, but the actual cash flow position has weakened due to high capacity and energy payments to the IPP’s and very high fuel costs. Wapda is thus finding it increasingly difficult to meet its operational requirements and the World Bank, the IMF financial covenants. There appears to be no-end to this dilemma nor any independent authority or apparent modality to manage and control the situation. Such a scenario can become the ultimate disenabler of the GOP’s overall economic reform and revival strategy.
On the reform and restructuring side, Wapda has not subscribed to, or effectively implemented the restructuring programme for autonomous operations of the 12 companies as independent corporate entities under the Companies Ordinance 1984. The ADB and the IFC have also been annoyed due to in-adequate cooperation by concerned departments with delegations/consultants carrying out various studies for NEPRA and the Privatization Commission (PC). This negative stance has put a damper on enforcement of the NEPRA regulatory regime and efforts of the PC. This situation is obviously sending adverse signals to the private sector and international investors, who will shy away from the current investment programme in the power sector, namely privatization of the KESC, the FESCO and the GENCO-1.
Meanwhile, even though the World Bank and ADB is providing funding liberally for other sectors they have cautioned that if the current scenario prevails they would not provide further funding to the power sector or the newly created 12 power wing companies. This will put implementation of several priority projects at risk, seriously effecting the power disposal of available and new generation capacity and national transmission systems power flow and stability.
Funding for the NPCC upgrade and modernization and setting up of power control centres in the eight DISCOs is also not currently available, thereby inhibiting introduction of market operations by independent system and market operators (ISO & IMO) under the new deregulated and competitive structure envisioned under the NEPRA Act. Also the World Bank Energy/Power Sector SAC-II of $350 million currently under consideration by the World Bank may be withheld/delayed as the essential objectives of the power sector reform, restructuring and privatization plan appear to be getting delayed/off-track.
In summary, a crisis situation has been created whereby the power utility is in non-compliance with the GOP’s strategic objectives of the power sector reform and privatization programme. It is thus essential that the GOP’s strategic plan for the power sector be fully enabled and implemented to allow effective restructuring, decentralization, corporatization and commercialization of the power sector.
The GOP organizations entrusted to carry out the programme, namely, the NEPRA, the PEFCO, the MW&P and the Policy Committee must be fully empowered to implement state policies. The situation further warrants that the government appoint a minister for water and power and set-up a special power sector task force with a clear mandate to monitor and manage the sector reform programme and resolve various issues in the best national interests and for the benefit of the public, business and industry. Immediate corrective action is essential to avoid an unmanageable situation, which can forestall the economic revival programme and dampen the government’s substantive achievements on various other fronts.
(The writer is a former chief exective of PEPCO.)