MoF adds to Wapda''s woes by refusing to extend bank guarantee

The Finance Ministry has added to the Water and Power Development Authority''s financial woes by refusing to extend to the it government''s bank borrowing guarantee that the utility desperately needs to overcome a severe financial crunch, sources in the Ministry told Business Recorder here on Wednesday.
They said that Finance Ministry, backed by Prime Minister Secretariat, has directed the power entity to approach the Economic Co-ordination Committee (ECC) of the Cabinet to seek government guarantee that it needs to raise the required funds.
They said that the Prime Minister Secretariat had set aside a request of Minister for Water and Power, Liaquat Ali Jatoi. In that request, the sources added, the minister had sought the release of Rs 4-5 billion ad hoc subsidy to make payment to independent power producers (IPPs).
"Wapda owes about Rs 17 billion to IPPs which are facing serious cash flow problems and may not be in a position to pay for fuel oil to generate electricity as per demand of National Power Control Centre," sources quoted the minister as saying, warning that the situation could lead to aa disaster as sudden closure of power plants, for want of fuel, might result in very heavy load-shedding, and the Wapda default on payment might precipitate a call on sovereign guarantee of the government.
He also requested the Prime Minister for the release of Rs 4-5 billion additional ad hoc subsidy for Wapda, but the Prime Minister Secretariat transferred the case to Finance Ministry without consideration.
In response to Jatoi''s letter, Finance Ministry instead asked Wapda to fulfil two requirements in which it was said that Wapda must service Rs 17.8 billion federal government debt, and it must be done urgently. The other demand was that it must, without any further delay, prepare Disco-wise financial improvement plan (FIP), explaining how they would improve on line losses, recoveries etc, consistent with Nepra''s benchmarks.
"If Wapda does not carry out these efficiency improvements, the requisite subsidy from the budget will be absolutely untenable as would be required tariff increase. This is all the more urgent, considering that the unbundling of Discos with financial and administrative autonomy expected to begin from the next financial year," sources quoted from the letter of Finance Ministry to the Principal Secretary to the Prime Minister.
Wapda, replying to the observation of Finance Ministry, argued that its entities were suffering not only from liquidity problems but were also confronted with profitability/sustainability problems.
"Liquidity problems, for the time being, have been addressed through raising of short-term borrowing, which is bridge financing, and against the committed subsidy of around Rs 18 billion," sources quoted Wapda as having argued in its letter. This subsidy originally accrued in fiscal year 2006-07 for the difference between tariff determined by Nepra and notified by GoP for the period February 24 to June 30, 2007.
Further, Wapda also contended that the tariff should have been revised at the very outset of the financial year 2006-07 but that revision was deferred till end of February 2007.
This resulted in growing mismatch between cost and revenue. The subsidies of Rs 22.7 billion, released during pre-notification period, as well as the subsidies committed for the post-notification period Rs 18.4 billion (right now arranged through bridge financing) would not be able to generate funds to service its DSL.
Keeping in view its financial position, Wapda, therefore, had shown its inability to service the DSL for 2006-07, amounting to Rs 17.8 billion, and requested for its waiver, or conversion into GoP equity. Sources further said that Residual Wapda Power Wing (RWPW) has is confronted with severe financial crunch due to various reasons beyond its control.
In order to tackle this situation, RWPW, in close collaboration with the office of the Additional Director General (Debt), GoP, managed to arrange short-term finance facilities to the tune of Rs 24 billion up till now. Out of this, Rs 14.00 billion was raised during April and May only while facilities amounting to Rs 1 .90 billion are in the pipeline.
According to sources, Wapda arranged disbursement of running finance facilities of Rs 3 billion by Habib Bank, Rs 5 billion by National Bank of Pakistan, and Rs 3 billion by Standard Chartered Bank, on firm commitment of Finance Division that GoP guarantee would be issued after disbursement of loan by these banks.
The Finance Division has asked the Ministry of Water and Power to obtain ECC''s approval for provision of GOP guarantee to Wapda''s bank borrowing.
Further two more running finance facilities of Rs 1.50 billion from Muslim Commercial Bank and Rs 0.40 billion from Dubai Islamic Bank are in the process of finalisation, for which Finance Ministry has issued letters of comfort. Sources said that Wapda was making all-out efforts to overcome financial crunch, but it was unable to obtain full cooperation from the Finance Ministry.