De-energising Power Rates
Over the past few months it has become quite apparent that Water & Power Development Authority (WAPDA) and Karachi Electric Supply Corporation Ltd. (KESC) are in a serious debt crisis. This was brought into sharp focus by the brutal murder of MD KESC Shahid Hamid several months ago by what seems clear was a professional hit team, the reason being that the late MD was delving deeper into the various irregularities that would have exposed quite a number of people. The explicit warning inherent in the gangland-type assassination was thus made quite apparent to others in similar situations. Needless to say the warning has been heeded to the detriment to the interests of the people of Pakistan even by the small dedicated band of people determined to eradicate corruption. The government has been concentrating on the Independent Power Projects (IPPs) as the major reason for the power rate crisis, that in fact was the final straw that broke the camel’s back.
Let us take the straws that count and list them under two heads, viz. (1) generation and (2) distribution of electricity and then work our way back to some of the more scandalous IPPs. Whether the generation-mode is hydel or hydrocarbon, the machinery has been over-priced. While it did not make much of a difference in hydel-generated electricity, the price padding in hydrocarbon fuel – generation machinery has kept on escalating along with the price of fuel. At least 2 or 3 WAPDA chiefs made enough money to live out lives far in excess of their basic known means, to add to this the power plants are being run quite inefficiently thereby giving us unfavourable power to price ratio. With transmission losses quite high, the basic cost of bringing electricity to the doorstep of the consumer is quite high. At the consumer’s bus-bar a completely different mafia takes over, the meter readers and inspectors. The categories of consumers are (1) industrial (2) commercial (3) domestic urban (4) agriculture (5) government departments and (6) domestic rural. Without almost any exception almost all industrial and domestic consumers cheat. One simple litmus test are the ice factories where it is comparatively easy to calculate possible consumption against the product made. For the ice presently coming out of each factory, four to five times or more greater voltage has to be used. Obviously the ice factory owner would sell at a profit which means that at least 90% of the electricity is not paid for. On a lesser scale so do commercial users since it is easy to calculate the load factor because of the air conditioners and other appliances against the energy that is paid for, the same is true on a commensurately lesser scale for domestic urban users! Government departments do not cheat, they simply do not pay their bills, at least on time. The agricultural consumer not only cheat, they hardly pay their electricity bills whether it be for tubewells or domestic use. Some areas do not pay electricity bills at all e.g. the rural areas of Balochistan and the Tribal Territories, protesting vociferously any attempt to make them do so.
Obviously if 50% or more of the electricity generated by inefficient and over-priced plants run on expensive imported fuel is not paid for, this force-multiplies the pressure on revenues against expenditure, what does one expect the government to do except raise prices to reduce the adverse negative gap between expenditures and revenues? However this is a Catch-22 situation, the raising of prices plays into the hands of the unscrupulous who increase their “demands” commensurate to the increase in prices, the net result is a meagre increase in energy revenues, that is more than washed away by the inflation that ensues because of raised prices.
Into this cauldron of opportunity came the IPPs on the strength of a very imaginative and comprehensive private sector energy policy floated by the Benazir regime. The policy had everything going for it and had it been implemented properly, it would have been tremendous energy plus for Pakistan, what was wrong was (1) the price indicator of HUBCO (2) the sale of Kot Addu and (3) the individual manipulation allowed to each IPP in a wild west energy environment (no pun intended on the then Supremo of Environment). HUBCO was all wrong, for the right reasons. The brainchild of a senior World Bank employee, Ebrahim Elawan, its cushy-cozy deal was quite apparent from the appointment of Consultants for the Project, then a brand new US company K&M Engineering. While the owners of this firm were US Construction giant Bechtel’s former employees Kappas and Menendez, this firm did not have any requisite experience to handle a project of this size, yet the World Bank and US Aid kept funding it for five-six years at Pakistan’s expense till the project was approved almost at gunpoint. The price became a bench-mark, and the cost broke every world record for corruption. The thumb rule for every MW of electricity is US$ 0.9 million as an all-in price, for HUBCO Pakistan has had to pay as much as US$ 1.6 million for every MW of electricity as project cost. Obviously the cost went up and with HUBCO as an indicator or (0.9 @ per km/hrs), no wonder WAPDA is in a deep financial mess. Similarly Kot Addu’s new owners raised the selling price to 3 times what it used to be pre-sale (and the sale itself was virtually a fire-sale).
On the face of it, it seems a fairly easy assumption that bribe was paid except in 2-3 cases. The US firms stand to run afoul of the Foreign Corrupt Practices Act, that is exactly why they have launched an expensive and sophisticated media campaign to pressurise the government. Why was the cost price so high in Pakistan’s case? If, the IPPs had agreed to reducing the cost, why should we open a Pandora’s Box, on the other hand they deserve criminal prosecution for criminal wrongdoing for falsifying financial records. By invoking a similar Corrupt Practice Act through a Presidential Ordinance, the Nawaz Sharif regime has adopted a sophisticated method of dealing with the IPPs. Essentially they are now required within 7 days of issues of notice to certify that they have not bribed anyone in a position of influence. Instead of threatening to revoke the sovereign agreements without reason and thus damning any hopes of future foreign investment, what has been asked for is reasonable, after all what is unreasonable in confirming that the respective corporate entities did not indulge in corruption? A window of opportunity has been left open, in lieu of co-operation to revive the power tariffs downwards instead of the project being cancelled in entirety. If the IPPs have not indulged in any corruption they should have no problem complying with the certification. A threshold of integrity requires them to confirm compliance or reveal the names of those who took bribes and kickbacks. Mian Nawaz Sharif should be commended for taking a concrete step towards accountability. And why limit this inquisition to electricity and gas only, why not apply this certification to all major projects, including defence material, after all why in the face of strategic common sense vital to the existence of the country, the Navy does not want to cancel two of the three submarines on order from France in order to buy high-tech combat aircraft off the shelf that the PAF desperately needs? And while we are at it, why not also have Biwater, UK certify that in the US$ 25 million dollar water project it did not pay money to some senior politicians and government functionaries? Let us expand the scope of this act to effect accountability across the board, the IPPs are a good start!
Instead of privatising generation we should immediately start to privatise distribution. A city such as Karachi can be divided by KESC into Zones depending upon its transmission i.e. the grid stations from where the electricity is distributed in each area. After catering for loss, the private distribution companies must pay for electricity consumed at their bus-bar, maintaining the transmission system through the revenues they generate. Raja Nadir Pervez, Federal Minister for Water and Power, is to be commended for his Herculean efforts to get the IPPs to toe the line, however he also needs to drastically restructure and reform WAPDA and KESC, or at least curb their inefficiency and corruption somewhat if we are to successfully de-energise power rates. One must be wary of cronyism here, we cannot afford to replace one set of crooks by another. In the recent election to the Board of Directors KESC, deep-seated political cronyism was quite apparent, a systematic prelude to corruption on the road to privatisation. At the end of the totem pole is the common man who has come to such a stage in paying a high price for electricity that he probably will have to do without electricity in the future if he and his family have to eat. For the IPPs it may mean a curtailing of windfall profits at the most, for the long suffering consumer of Pakistan it may mean the difference between hunger, misery and privation if the costs are not reduced. Not only for the consumer but for the country the future is dark indeed if the IPPs manage to crawl/bribe their way out from this piece of legislation!
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