ISLAMABAD: With 40 per cent capacity lost to mismanagement and privatisation having been ruled out, the government has decided to hand over control of Wapda’s four generation companies (Gencos) to private firms on management contracts under a performance-based structure of incentives.

Briefing newsmen on decisions taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Finance Minister Dr Abdul Hafeez Shaikh on Tuesday, Finance Secretary Dr Waqar Masood Khan said the committee had decided in principle to give management contracts to the private sector through open bidding to turn around the four generation companies of Wapda.

Dr Khan agreed that some of the generation companies were working at as low as 18 per cent efficiency which meant there was a lot of potential for improvement. The four Gencos together had an installed capacity of about 4,829MW but they were producing a maximum of about 3,500MW. “It is estimated that efficiency gains through operation and maintenance contracts could provide an additional capacity of 1,243MW and offer a saving of Rs82 billion per annum if their efficiency was improved to 33 per cent”.

The ECC constituted a special committee headed by Minister for Water and Power Syed Naveed Qamar and comprising representatives of petroleum, planning and finance ministries to work out a framework for the contracts in consultation with the National Electric Power Regulatory Authority (Nepra) in 45 days.

He said the contracts would initially be for 10 years. The government will not pay any mobilisation advance, the contractor will not be allowed to carry out retrenchment. But how much investment should be made, how much of this should involve tariff adjustment or how much return on investment be allowed will be worked out by the Naveed Qamar Committee.

This is the first time in the country that the concept of management contracts is being introduced to improve bleeding public sector corporations — a major departure from previous experiments of outright sale, partial privatisation along with management controls and listings on the stock exchanges.

The three major thermal companies in Muzaffargarh, Guddu and Jamshoro, with a combined installed capacity of about 2,800MW could hardly produce 1,700MW and that too at an output efficiency of only 25 per cent. As a result their tariffs go out of manageable limit and hence plants are to be closed for a lot of time.

Due to poor maintenance of the power stations, Gencos have lost nearly one-third of their capacity and nearly 17 per cent of their thermal efficiency due to plant degradation. Most of the units are capable of running both on gas and oil, but were operating on oil firing due to shortage of gas. Muzaffargarh station alone had lost more than 40 per cent of its generation capacity, while Jamshoro and Guddu’s capacity had come down by 32 per cent and 31 per cent, respectively. Some of the units have lost up to 63 per cent of their generation capacity.Mr Khan said the capacity gain could be shared between the contractor, the government and against the tariff adjustment at 30 per cent each.

TARIFF RATIONALISATION: The finance secretary said the meeting considered a study on tariff rationalisation conducted by an Australian expert who suggested that there should be no non-tariff barriers, the import tariffs should be lower and uniform, there should not be any specific duties, there should not be any discrimination between manufacturing and import and no licences for import and export.He said the committee approved the recommendations in principle but decided to wait for the opinion of the ministry of industry and the Engineering Development Board, the textile industry, the ministry of commerce and the Federal Board of Revenue to decide if maximum 25 per cent tariff should be reduced.

LPG POLICY: Mr Khan said the ECC also approved the LPG Policy, 2011, under which the price differential between domestic and imported LPG would be mopped up in the form of gas development levy (GDL) on locally produced LPG. He said the government was expected to earn Rs3 billion from GDL by denying a windfall gain to local producers on account of lower domestic prices. He said the LPG prices would not increase for end-consumers as a result of GDL.