As part of its bid to reform the state-owned power companies, the government has finalised the appointments to a 12-person board of directors of a holding company meant to oversee the transition, and is likely to nominate the former head of the Karachi Electric Supply Company to serve as its chairman.
Sources in the finance ministry told The Express Tribune that the top economic management team had finalised the names and the formal announcement would be made by the water and power ministry soon.
The nominations come on the heels of the government’s decision to merge four state-owned power generation companies at the policy-making level while retaining their operational independence. It has already constituted a holding company to speed up the process of structural reforms.
Sources said that one name currently being considered to head the holding company was Naveed Ismail, who was CEO of KESC until October 2009, when he resigned from the position. He is known as a turnaround specialist, though he was unable to move KESC towards profitability.
All 12 names have been selected based on their experience levels and lack of political affiliation. Among the tasks of the transition team will be to appoint CEOs for the four power generation companies that they will have supervision over.
The four companies have an installed power generation capacity of 4,900 megawatts, though the government is only generating 2,000 megawatts from them due to inefficient fuel consumption. Efficiency levels at the plants range between 24% and 31% (an efficiency level of above 40% is considered acceptable).
In order to compensate for the low efficiency, the government has been raising power tariffs. Late last week, the National Electric Power Regulatory Authority (Nepra) increased tariffs by an average of Rs3.04 per unit on account of rising oil prices. The government is planning a further 12% increase before the end of the fiscal year to eliminate subsidies to the power sector.
Experts have been arguing that the government should accompany tariff increases with structural reforms in the power sector, something the government has struggled to do.
The power sector has exhausted the Rs11 billion injection of money that the government made in order to mitigate the financial crisis in the sector. This has again resulted in increases in the duration of power outages.
During the last cabinet meeting, no major decision on power sector reforms was taken except instituting two-day a week holiday in order to conserve energy. So far, only federal government institutions are observing a two-day weekend while Punjab, where most of the energy is consumed, has opposed the decision.
In the next cabinet meeting, the government is likely to take a decision about tackling the circular debt that according to various estimates ranges between Rs285 billion and Rs300 billion. Currently, the Pakistan Electric Power Company’s payables stand at Rs299 billion against Rs314 billion receivables.
The government has yet to find a solution to the penal charges problem. The independent power producers (IPPs) have worked out Rs24 billion penal charges on account of delay in payments. The IPPs are compelling the government to pay this amount which would ultimately be transferred to the end consumers.
Published in The Express Tribune, October 19th, 2011.