Donors warn of stopping Rs300-400 bn credit line

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ISLAMABAD: Pakistan has breached the IMF loan’s terms by reversing the power sector reforms and bringing the unbundled power sector entities (Discos and Gencos) under Wapda. The World Bank, Asian Development Bank and the USAID have threatened to halt their credit lines and grants amounting to $3-4 billion (Rs300-400 billion) for reversing the reforms. Pakistan, which is certain to seek another IMF loan of $5-7 billion to stabilise its economy, will face the music for reversing the power sector reforms. The donors also need the nod of the IMF to extend more loans to Pakistan.

Three international donors — World Bank, ADB and USAID — have recently written a letter to the Economic Affairs Division (EAD), threatening to halt their credit line for power sector reforms, as the power sector reforms have been reversed with the notification of the appointment of Wapda chairman as the power sector coordinator. They have asked for the revival of the power sector reforms, said a top EAD official.

The sources said that Deputy Chairman Planning Commission is also concerned over bringing the power sector under Wapda, whose chairman has also been the co-chairman of the board of directors of all Discos. The bleeding power sector s feared to face the deficit of Rs792 billion in the ongoing current financial year because of the slow implementation of the power sector reforms.

However, some officials say the government’s decision to bring the whole power sector under Wapda has saved it from total collapse. The government has appointed Wapda Chairman Syed Ragib Shah as the power sector coordinator. Chief executive officers (CEOs) of the power distribution companies (Discos), generation companies (Gencos), National Transmission and Despatch Company (NTDC), Central Power Purchasing Agency (CPPA) and Pakistan Electric Power Company (Pepco) will report directly to him for the purpose.

He will also discharge his duties as co-chairman of the reconstituted board of directors of NTDC/CPPA. The water and power ministry has already issued a notification to this effect.

They said that the appointment had been made with the intention of turning around the power sector, whose transmission system is also on the verge of collapse. The power sector has also eaten up the dues of over Rs96 billion of the Water and Power Development Authority (Wapda) and is unable to pay back to the mother organisation, which is why Wapda has no money to complete its ongoing hydropower projects.

Wapda is unable to open the ESCROW account for the Terbela Extension IV project for which the World Bank has extended about $840 million to the government. The World Bank has linked its release of loan with the opening of ESCROW account but the NTDC, being run by the DMG Group, did not open the ESCROW account.

The power sector was earlier run by unprofessional people and with the appointment of Wapda chairman as its coordinator, it may be able to stand on its feet, they say.

The revenue collection has reduced to less than 80 percent owing to which the circular debt has increased manifold. About the transmission system, an official said this system was also on the verge of collapse as upgrading and maintenance of the transmission system was ignored.

The official said that right now the transmission system runs on the active and reactive power, but on the reactive power side, no investment had been made due to which the system could collapse. However, the donors want the tariff reforms under which the cost of electricity generation should be received from the end consumers and end to all kinds of tariff subsidy to all power consumers. They are in favour of cross subsidy only for lifeline consumers. Under the reforms, so far the board of directors of electric power distribution companies (Discos) have been constituted, which are not powerful and the financial autonomy has also not been extended to Discos. The privatisation process of the discos also failed to start. The donors also want the establishment of ESCROW accounts for all the IPPs and hydropower plants to prevent the Gencos from the adverse impact of the circular debt and to ensure the smooth cash flow.

 

Courtesy: The News


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