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Government decides to wrap up Pepco

Abdul HafeezISLAMABAD: In pursuance of a reforms agenda pushed by international lenders, the government has decided to sell 5-10 per cent shares of power distribution companies to the general public, change their management, fire meter readers and replace the Pakistan Electric Power Company with a new cell within the federal government.

All the measures and a 24-35 per cent increase in electricity tariff, partly during the current fiscal year, were discussed on Monday at a meeting of the Planning Commission.

The plan also envisages different tariffs in the provinces, much lower in Punjab because of its better managed distribution companies.

According to sources, Planning Commission’s Deputy Chairman Dr Nadeemul Haque, who is spearheading the electricity reforms, had to hand over to Finance Minister Dr Abdul Hafeez Shaikh on Tuesday a business plan for transition from the Pepco-led power sector an independent 14-company set-up, but it would take a few more days to fine-tune the implementation scheme. He is being assisted by Shahid Sattar, a consultant of the ministry of water and power.

Dr Haque told Dawn that drastic steps were needed on a war footing to solve deep-rooted problems in the power sector.

“There is no point in having manual meter reading in today’s world. The existing electricity meters have to be replaced by smart meters with the capability to instantly detect theft and ‘kundas’ (illegal connections) without physical inspection,” he said, adding that this would end the need for meter readers.

He said Pepco would be wrapped up by Oct 31 as a first step of the reforms.

This will be followed by making all the distribution, generation and transmission companies fully independent to take their commercial decisions along with a change of their management and sale of their shares through the stock markets.

Dr Haque said the Faisalabad and Islamabad Electric Supply Companies would be taken to the stock market for initial public offering (IPOs) through sale of 5-10 per cent shares in the first phase to be followed by other companies as interest developed among people.

He said the proceeds from the IPOs would be used to clear the circular debt and power sector liabilities.

Replying to a question, the deputy chairman who has spent over 24 years with the International Monetary Fund (IMF) said the restructuring would entail a reduction in the manpower but that was an inherent aspect of any reform process which should be seen in the context of overall dividends.

He said a part of the tariff increase had to be made during the current fiscal year but its size and timing would be decided by the government.


A Pepco official said Mr Sattar, the consultant, had not bothered to study a business plan submitted by the company that envisaged a set of measures to bring the power sector to a level of financial sustainability without increasing the tariff during the current year.

He said that if Pepco’s business plan was implemented without political interference, there would be no need for a 41.2 per cent tariff increase estimated by federal government consultants.

He said the power companies should be given independence and autonomy instead of creating another highly paid cell in the ministry of water and power to replace Pepco.

The official said the power companies had estimated a requirement of about Rs77 billion distribution margin, which Pepco had scaled down to Rs62 billion.

“We have also identified a number of measures to stop leakages and improve efficiency that would reduce losses by about Rs30 billion.”

Coupled with this, a plan for tariff rationalisation involving a 4-7 per cent increase and allocation of more gas would be sufficient to overcome the financing gap and stabilise the companies before selling their shares to fetch a better price for state resources, he said.

He said the banking sector was not ready to lend to the power companies because Rs301 billion was parked with the newly created Power Holding Company, while the federal government had been withholding electricity bills payments and tariff differentials since 2008-09.

He alleged that a group of people in the government was pushing the induction of more rental power plants which were adding to the financial difficulties being faced by the power companies. He said the fuel mix had improved this year because of better hydrological conditions, lower oil prices and reduced consumption because of flooding, but these benefits appeared to have been lost because of non-payment of provincial electricity bills, reduced gas supplies and increased rental power projects.

The Pepco official said that a recent report of the Asian Development Bank had held the ministry responsible for slower reforms and many other problems, but another powerful cell was being created in the ministry.

He said Pepco had never been allowed to function independently.

He said a group of consultants was out to create a war-like situation among the provinces and workers which would create difficulties for the government.

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