PERFORMANCE EVALUATION OF WAPDA PEPCO AFTER RE-STRUCTURING IN TERMS OF OPERATIONAL EFFICIENCIES & IN-EFFICIENCIES.PDF

Abstract

Electricity is a main engine for economic activities and industrial growth. There are two main players in Electricity sector of Pakistan namely WAPDA and KESC. KESC is public limited company providing electricity for Karachi and its surrounding areas. WAPDA was created in 1958, as an autonomous body for the development and use of the water and power resources on a unified and multipurpose basis. In the early 1990s, it was clear that, with electricity demand growing at about 9.0 percent per year, WAPDA did not have the resources to increase generation capacity at the rate required to eliminate load shedding and undertake essential routine maintenance on all plants in the system. WAPDA was restructured into PEPCO as implementing agency and 15 incorporated entities as executing agencies, all of them state-owned for the purpose of carrying out accelerated and unified development of power resources. This study has been conducted to compare and evaluate the operational efficiency and in-efficiency before and after restructuring of WAPDA and draw conclusions based on the key findings. Main points of the study are summarized below: Pakistan’s power generation mix includes 64% thermal plants operating on heavy fuel oil (furnace oil), diesel oil, natural gas, coal, in addition to 33 % hydro and nuclear power. WAPDA continues to operate hydropower plants while 16 independent power producers (IPPs) have a collective capacity of about 5,728 MW electricity productions. The peak electricity demand in the country in FY 2010 was 19,246 MW and energy generation was 87,798 GWh. The transmission system in Pakistan consists of 500 KV and 220 KV networks, with sub-transmission voltage levels of 132 KV and 66 KV. The total length of the WAPDA transmission/sub-transmission networks in FY 2010 was 52,158 circuit-kilometers (c-km). The total length of distribution lines in the WAPDA service area in 2009-10 stood at 281,301 km at the 11 KV level and at 210,127 at the 440/220 KV level. The number of end consumers in 2010 reached 19.582 Million of which 16.672 Million are residential. During FY 1999 to FY 2002 the number of manpower in distribution companies reached to 92,244 at the rate of 10 percent. Percentage increase in village electrification between FY 1999-2008 was more than 100% whereas during FY 2008-10 it goes down by more than 50% because of funds crisis in the country. Total losses in the WAPDA system have been maintained within the 22.8 - 28 percent range since the 1990s. DISCOs earned high revenue from domestic about 35%, commercial 15%, industrial 40% and other consumers was 10% ii recorded during FY 1997-2010. WAPDA’s financial performance started to deteriorate in FY1997, and has been unable to meet its financial covenants. It was noted that the profitability of all DISCOs was very poor except IESCO, LESCO and FESCO which earned a profit of Rs. 2,286 Million, 6,490 Million and 2,177 Million in FY 2010 respectively. Electricity consumption has already increased to a point where the system production reserves have shrunk to a precariously low level. Investment has been lagging behind load growth, progressively increasing the risk of deteriorating service and supply disruptions. Efficiency improvements are modest. The rising costs are outstripping sector revenues at an increasing rate. The sector is a major and growing drain on the government budget, while at the same time it continues to subsidize consumers through unbilled consumption, uncollected bills, and below-cost tariffs. Managerial and technical talent within the state-owned segment of the sector is still constrained by the lack of full empowerment, stronger incentives and full accountability. Structurally, the sector is at a crossroads and needs to decide which way it wants to go. Although unbundled in the technical legal sense, the system continues to operate as vertically integrated. Staying suspended in this half-restructured state with conflicting responsibilities for operational and financial performance carries significant risks. WAPDA keeps some important functions which should belong to the single-buyer agent and to the regulatory agency. It is WAPDA that de facto plays the role of the holding company and exercises ownership control over all WAPDA successor entities and thus, in large measure, controls its own restructuring. Planning remains reactive as opposed to proactive and therefore remains ad hoc. Key measures whose implementation would lead to decisive progress in completing the reform program and to a better positioning of the sector to respond to the challenges it faces include: Empowering DISCOs to control their performance, better tailor corporate strategies to local conditions, enhance public scrutiny, induce more “competition by comparison” among DISCOs, and facilitate privatization; The existing tariff design deserves to be revisited to ensure better cost-reflectivity, reduce cross-subsidies, simplify tariff structure, and better target assistance to the poor; WAPDA shall undertake a study for maximizing hydel power generation from all rivers, particularly Indus, to identify strategy and projects for increasing the hydel power share.