Wednesday, November 3, 2010

Pakistan to go bankrupt if power sector not reformed, warns IMF

Pakistan to go bankrupt if power sector not reformed, warns IMF By Khalid Mustafa

ISLAMABAD: International Monetary Fund (IMF) has warned Pakistan of aid cut-off in case Islamabad does not come up with credible and irreversible plan to implement the power sector reforms.
Adnan Mazarie, head of the mission, has asked the government to introduce the irreversible plan to implement power sector reforms otherwise no funding will be provided to Pakistan
, a senior official who is privy to the talks with IMF on power sector reforms told The News Tuesday. “The Fund has also warned that all IFIs including WB, ADB and even USAID will cease their credit lines and resultantly Pakistan will go into default.”

Since Pakistan has never looked serious in introducing the required power sector reforms the IMF has asked the top officials concerned to first show a credible plan to this effect, the official said.
Under the power sector reforms, the government has now dissolved Pakistan Electric Power Company, which was set up in 1998 soon after Wapda was converted into eight power distribution companies. “Pepco will go into liquidation by April 2011,” the official said.

The IMF mentioned in Tuesday’s meeting that Pepco was originally to be dissolved two years after it was set up but it took the government 10 years to dissolve the entity. Likewise, for the last two to three years, the National Electric Power Regulatory Authority (Nepra) was not empowered to notify power tariff and zero financial autonomy was given to electric power distribution companies.

Although the government has tabled the amended Nepra Act in the National Assembly, but it is yet to be approved.

The IMF also mentioned that the government has also failed to erase subsidies in the power sector. Pakistan says if subsidies are removed in one go, then power tariff will have to be increased by 30 to 35 per cent, which the government cannot afford politically. Pakistan will give the IMF today (Wednesday) the credible action plan to implement power sector reforms along with timeframe.

To a question the official said that 2.2 per cent increase in power tariff per month till 2011 will be made to recover the generation cost. The IMF was also told that the power sector is facing a deficit of Rs226 billion which will be financed partially through increase in tariff and efficient management of power distribution and generation. The government intends to save Rs50 billion through efficiency, reduction of line losses and good governance in 2010-11, but IMF does not agree with it.

Pakistan has told the IMF that financial autonomy will be ensured to the electric power distribution companies and their board of directors will be reconstituted by December 31, 2010. The directors of the board, the official said, would be taken from industry and business professionals while the government officials currently working as directors would be taken back.

The members of the board are to be selected competitively and ministry of water and power will hire a firm to select the members of BoD in order to minimise political intervention. Currently the government and political interventions are the main factor in the way of improving efficiency and governance. When depoliticised board of directors would be installed in each power utility, then all the decisions would be made on merit and every utility would then be able to perform. This is the only way to turn loss making entities into profit making ones,” he said.

Apart from it, the IMF was also told that the government has planned to enlist all eight electric power distribution companies (DisCos) on the stock exchange and offload 10-15 per cent shares of each power utility as part of ongoing power sector reforms. The offloading of 15 per cent shares of the two power utility companies will be a first step toward privatisation of power distribution companies.

“And to this effect we have decided to get Islamabad Electric Supply Company (Iesco) and Faisalabad Electric Supply Company (Fesco) and Genco-1 listed in the stock market by March 2011.” This will not only ensure transparency, he argued, but would also help improve the corporate culture in all the power utilities.

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