Shocking Pakistan's power producers
Kamal Siddiqi
Pakistan's state-owned power utility, the Water and Power Development Authority (WAPDA) has entered into a battle with the Hub Power Company (Hubco), Pakistan's largest private power producer, over the alleged tampering of meters which record the supply of power to the national grid. WAPDA has threatened to terminate the power purchase agreement with Hubco, which has sent shock waves amongst private power producers, many of whom will be going into production within a few months.But observers say that the real reason behind the battle are not the tampered meters but the inability of the Pakistan government to pay the price of power it had earlier agreed upon with the private producers. The private power policy of the previous government, headed by prime minister Bhutto, had attracted a number of international producers to Pakistan under what some analysts say were "sweet-heart conditionalities." Shahid Kardar, an economist, criticised the price of 6 to 6.5 cents per kilowatt hour as "too high." Officials
at the water and power ministry say that the consumer would end up paying 9 cents per unit, if this price is honoured. Shahid Hasan Khan, the economic assistant to former prime minister Benazir Bhutto, who was instrumental in the signing of these agreements, says in defence that these were the rates at which the investors were ready to come into Pakistan. "They were not interested in lower prices keeping in mind the risks involved. Since we were seeing a massive power shortage in a few years time, we thought this was the best option at the time." The Nawaz Sharif government, which came into office in February has since been pressing for a revision of the price at which WAPDA will buy power from the private producers. Former water and power minister in the caretaker cabinet, Abdullah J Memon, says that the decision to lower the prices has to come voluntarily from the producers. "The Pakistan government has signed iron clad agreements. We cannot go back on them without upsetting the international
investors," he says. The caretaker cabinet, which acted as an interim government before Nawaz Sharif took over as prime minister following elections in February 1997, was very critical of the power policy because it is based on thermal generation. President Farooq Leghari has called for a hydel-based power policy, and the government has announced that its foreign exchange crisis will make it "very difficult" to meet the anticipated jump in fuel bills when all power units come on line by 1998. The minister for power, Nisar Ali, has invited the producers to reduce prices on their own. And the producers have refused. The only company which has shown any response has been Hubco, the operators of the 1.5 billion dollar Hub Power Station, owned by UK firm National Power and Zenel of Saudi Arabia. Hubco's 1,292 megawatt thermal power plant at Hub, outside Karachi, is selling 100 per cent capacity to WAPDA. But before any progress could be made, the WAPDA notice was sent in which it has threatened to cancel the
power purchase agreement (PPA) over the issue of meter tampering. And yet, officials at Hubco privately say that the WAPDA notice has been sent to Hubco, "as a lesson to others since we are the biggest project around." Mike Woodroffe, the Hubco chief, says that the issue at hand of the tampering of meters is small and "there is no reason to terminate the contract." The Hub Power project is the single largest investment made in the private power sector in Pakistan. The project achieved a financial close in 1995 and the construction of the four turbine 1,292 megawatt was completed this year. In March 1997, the project went into full production increasing Pakistan's installed power capacity by 13 per cent in one stroke. Power minister Nisar Ali has now admitted that WAPDA "acted in haste," but warns that legally the government is entitled to send a notice to the company although cancelling the PPA "would be a bit too much." But observers says that the battle between the power producers and the government
has just begun. The biggest question is where the financially bankrupt WAPDA will get the money to pay for the power Pakistan desperately needs. German company, Siemens, announced last week that it was laying off 300 of its employees from one of its factories because WAPDA was not paying up the billion rupees it owes the company. WAPDA is facing serious financial crisis with default on payments looming large and debt servicing obligations escalating. The poor condition of the power utility is blamed on a number of reasons: delays in completion of power projects, power subsidies to the agriculture sector and backward areas of the country under a government commitment, power theft, rise in prices of furnace oil, corruption within the organisation and power generation losses. Actual figures on all accounts are still to be made public but the government auditors say that the situation is quite bad. In such a situation, payments to private power producers for power bought is a cause for concern for the
government. Fire works are imminent: "We are only waiting to see who gets burnt," said one pessimistic manager of a private power producing company.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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