Loan worth Rs26.7b going to waste

Collection of electricity supplying companies’ dues continues to drop, 4 companies unable to pay World Bank.

ISLAMABAD: A World Bank loan of $310 million (Rs26.7 billion) is going down the drain as the performance of four power distribution companies has significantly deteriorated instead of showing signs of improvement, as was the aim of the commercial borrowing.

Despite implementation of the Electricity Distribution and Transmission Improvement Project from 2008, the arrears of the targeted four power distribution companies have significantly piled up in addition to increased line losses of two companies, according to documents available with The Express Tribune.

The project was launched to enhance the efficiency of Islamabad Electric Supply Company (Iesco), Hyderabad Electric Supply Company (Hesco), Lahore Electric Supply Company (Lesco) and Multan Electric Supply Company (Mesco).

Even the World Bank (WB) – in its latest, cautiously drafted status report – has dubbed the project ‘moderately satisfactory’. The WB’s criterion of success is based on disbursements instead of qualitative improvement, as indicated in the report. “Project implementation continues to improve and the total value of the contract awarded has exceeded $150 million but the disbursement remains slow,” it reads.

Pakistan signed the loan agreement in 2008 and is bound to pay interest at London Interbank Offered Rate (Libor) plus agreed additional charges. It pays the interest on March 15 and September 15 every year.

Of the $309.9 million, $253.4 million have been borrowed for strengthening the distribution network. It is interesting to note that a significant chunk of $16.6 million will be spent under the garb of ‘capacity building’.

Pakistan is struggling to cope with the power crisis caused by administrative and financial weaknesses. In summer electricity outages and in winter gas supply cuts have crippled the country’s industry.

Last year, two per cent of the gross domestic product (GDP) was lost on account of power outages, says the latest Economic Survey. The government has already dissolved the board of directors of all power distribution and generation companies. It has, however, been unable to name new boards despite passage of a significant amount of time.

The WB report says line losses and arrears of Lahore distribution company have increased over the last financial year compared to the benchmark of June 2007. Lesco is considered to be the most efficient company, following Islamabad’s power distribution company.

Lesco line losses increased from 12.8 per cent to 13.75 per cent, while collection of utility charges decreased from 99 per cent to 93 per cent, says the report. One per cent line losses are equivalent to Rs6.5 billion on average, according to estimates of the water and power ministry.

Mesco’s line losses and arrears also increased. The report shows that last year the company’s line losses increased to 19 per cent from 18.7 per cent. Its collection ratio dipped from almost 99 per cent to 94 per cent. The company sold 12,239 units till March 31.

While the Islamabad Electric Supply Company’s line losses reduced, its arrears increased. While line losses dropped from 12.2 per cent to 9.8 per cent, collection decreased from 98.1 per cent to 96 per cent. The company sold 8,396 units last year. Iesco is the most efficient power distribution company.

Meanwhile, Hyderabad Electric Supply Company’s line losses reduced from almost 37 per cent to 34.8 per cent but its collection dropped from 86 per cent to 60 per cent last year. The company sold 8,275 units and could only recover six out of every 10 units sold. It served 1.52 million customers last year.

Published in The Express Tribune, December 22^nd, 2010