Wapda faces cash crunch of Rs84 billion this year

ISLAMABAD — The Water and Power Development Authority (Wapda) is facing this year a cash shortfall of Rs84 billion (1.16 per cent of GDP) which will eventually be borne by a higher electricity tariff, commercial loans and budgetary support in the shape of deferred debt services payments

By A Correspondent

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Published: Mon 5 Feb 2007, 9:08 AM

Last updated: Sat 4 Apr 2015, 9:49 PM

The utility's current electricity shortage at about 1,000MW may touch 2000MW by peak summer this year when its overall system demand rises to about 14,500MW. The current wave of load shedding would fluctuate until March 31 and then resume in May onwards, Wapda sources said.

The cash shortfall has increased, in absolute terms, from about Rs30 billion in 2002 by 180 per cent despite over Rs100 billion injected by the federal government in the form of subsidies, deferred debt servicing and equity injections. From another perspective, the cash shortfall has increased from 0.8 per cent of GDP in 2002 to 1.16 per cent of GDP this year. " This poses a risk to the federal budget", said a finance ministry official.

The sources said that Wapda's overall cash shortfall as of June 30, 2006, stood at about Rs56 billion but shot up by 50 per cent since then largely because of jump in its fuel oil consumption by about 80 per cent to eight million tons from last year's 4.5 million tons. This alone is expected to increase Pakistan's oil import bill by more than $1 billion to $7.5-7.8 billion compared with last year's $6.5 billion. Wapda's member finance Imtiaz Anjum said when contacted that the shortfall had originally been estimated at Rs90 billion for the current year. This projection has since been lowered to Rs84 billion because of a decline in furnace oil prices from about 21,500 per ton to about Rs20,000 per ton. He, however, explained that even the new figure was a projection based on some assumptions and may turn out to be different in the end.

He declined to specifically identify various loss-making areas resulting in financial gap but said most of the input costs have gone up except its tariff and revenue generation since November 2003. Resultantly the cost of service has significantly outstripped revenue collection. For example, he said, the Wapda's per unit cost averaged Rs4.75 and was much higher than sale rates of about Rs4.10 per unit. The tariffs have remained frozen since November 2003 but the salaries of the staff have registered 60 per cent cumulative growth since 2001, he added.

He said the federal government had taken up the tariff revision with the National Electric Power Regulatory Authority (Nepra) but he was not aware of the details because the Wapda did not file any petitions for the tariff increase.

Sources in the ministry of finance said the government was currently assisting Wapda in negotiations with various banks to arrange Rs45-50 billion that would be available to the utility over a period of four to five years on federal government's guarantee. The cash shortfall is a difference between the total revenue collection and cash required to meet expenses for fuel, private power purchases, debt servicing, salaries and other miscellaneous expenditures.

A Wapda official said that among other reasons non-recovery of about Rs50 billion arrears from Fata, Peshawar and some other public sector consumers was a major factor contributing to Wapda's cash shortfalls resulting in bank borrowing with an additional impact running into billions of rupees.

In addition, Wapda was facing another Rs55-60 billion on account of system losses which continued to be in the range of 23-24 per cent despite lot of efforts and investments to improve the system. One per cent loss in Wapda translates into a financial loss of Rs2.5 billion per annum. Similarly, Wapda payments to independent power producers (IPPs) also surpassed Rs100 billion per year.

"Wapda's financial performance has been shaky over the past years and has sharply deteriorated this year", says an Islamabad based representative of a multilateral agency.

Some of the factors contributing to Wapda's continuous poor performance is attributable to weak bill collection, including from the public sector; high levels of transmission and distribution losses due to theft and leakage; inadequate tariff adjustments; increased purchases from independent power producers, including payments for large unused generation capacity; and the decline in the share of hydropower generation.

A report of the international monetary fund (IMF) said recently that reform of the power sector has stalled and the schedule of higher regional electricity tariffs has not yet been implemented. Completing the reform of the regulatory and tariff framework for the power sector will improve productivity, increase public sector savings and enhance the prospects for privatisation of power companies, it added.

The World Bank has also said that Pakistan's power sector problems posed an enormous challenge for the government, requiring considerable political and financial resources to resolve. " However, slow progress in implementing power-sector reforms is increasing the losses of the power system, further complicating the challenge."

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