EFFECTS OF POWER SECTOR REFORMS
SECTION – 7
EFFECTS OF POWER SECTOR REFORMS
AND DE-BUNDLING OF WAPDA
7.1. Looking back in the early 1990s, we see that the Pakistan Power Sector had stagnated and also stood bereft of new investments in generation, transmission and distribution of power. Consequently in 1992, the Cabinet Committee on Privatization approved a strategic Plan for Restructuring WAPDA. It was decided that WAPDA’s Power utility functions be separated and the Power Wing be unbundled and corporatized into DISCOs, GENCOs and the NTDC. More so, because WAPDA was thought to be created for the management of Pakistan’s water resources and was not organized, trained or skilled in the Power Utility business, which it had acquired much after its inception under the WAPDA Act of 1958, as a default and on nationalization of some of the smaller power entities in 1974, viz REPCO, MESCO, STESS etc.
7.2. Pakistan’s Power Sector history has been characterized by consistent power supply deficits, massive load shedding, resource constraints, extensive government involvement in finance and management, political interference in the management of the Sector and heavy dependence on weather-dependent hydel power. Following were the objectives set out in the Strategic Plan for the Privatization of the Pakistan Power Sector1:
a) To enhance Capital Formation for the Pakistan Power Sector (PPS) outside the Government of Pakistan Budget and without Sovereign Guarantee.
b) To improve the Efficiency of the PPS through Competition, Accountability, Managerial Autonomy and Profit Incentives; and
c) To rationalize prices and social subsidies, while maintaining certain socially desirable policies such as Rural Electrification and Low Income “Lifeline Rates”.
7.3. The Reform of WAPDA’s Power Wing functions into 14 Companies operating on market principles require knowledge and skills. It was out of this compulsion that a specialist professional body, as a management company, was created for the restructuring and corporatization of Power Wing and it was decided that PEPCO should take over and manage the transition of the power functions and then prepare the corporatized entities for privatization.
7.4. Pursuing the above objectives, PEPCO was functionalized in March 1998. Within few months of its creation, it was placed under WAPDA, and Chairman WAPDA was holding the additional charge of Chairman PEPCO, BOD and Member (Power) WAPDA was holding the charge of the MD, PEPCO too. This arrangement continued till 2007. During this period, restructuring and reform process proceeded in a phased manner, but with an extensively slow pace. The restructuring of WAPDA remained with the parent organization for a long time without the realizing that the mother entity could not possibly extend full support to the programme, which was initially against its own interest.
7.5. In view of the above near stalemate, the GoP took a review of the Reform Program in October 2007 and decided to separate the management of PEPCO and then placed it outside the influence of WAPDA, primarily to pave the way for conclusion of the reform process. Consequently, the GoP, through an Executive Order, bifurcated the Power Wing of WAPDA and placed its functions under the management of PEPCO including all the Corporate Entities except Hydro Power Stations (which were thought to operate separately under to be set-up companies/under WAPDA). Thus the real process of reform started after 2007, when an independent Managing Director PEPCO was appointed.
7.6. Looking into the process, it is seen that PEPCO substantially achieved major milestones of corporatization and commercialization, as the Power Wing of WAPDA has been unbundled and incorporated as corporate entities under the Companies Ordinance 1984, fully functioning under independent Board of Directors.
7.7. However, it seems that deep down, the reform process remains under stress and surely prone to intervention from within and without. At the same, the duality of management control through the BoDs put in place at the DISCOs/NTDC1 and the GENCOs level and that being exercised by the Ministry of Water and Power in causing great harm. It has resulted in stunted growth of the sector and extremely slow change in the make-up and psyche of the presently corporatized sector. The least thus that has to be done would be to clear in approach and especially let the DISCOs move ahead as distinct. Corporatized entities, where the GoP only exercises control through its representation on the BoDs. It must also allow the GENCOs and the NTDC to maintain only commercial ties with the DISCOs. The concept of PPAs and the provision of opening-up back to back LCs / SBLCs have to be introduced at the earliest. Similarly, the Government of Pakistan would have to restrict its subsidies to the loss making DISCOs alone and that too for a short duration- where after these DISCOs would be on their own with only NEPRA as the oversight body.
1 As contained in the above Notification.
1 Ministry of W&Ps office orders bearing No.JS(A&C)/2012/A-III dated 31-08-2012 and last office order bearing even number dated 14-09-2012 requiring JS(A&C)/to maintain the working of the PSCEs) Power Sector Corporatized Entities).