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Unformatted text preview: ion program is reportedly
underway. The main state-owned utilities are the
Water and Power Development Authority (WAPDA),
and the Karachi Electricity Supply Corporation
(KESC), which serves only Karachi and surrounding
areas. Together, WAPDA and KESC transmit and
distribute all power in Pakistan -- over half to
household consumers, about one third to industrial
consumers and the rest to commercial and
government consumers. Rates are determined by the National Electric Power Regulatory
Authority (Nepra) and disputes over adjustments to rates are common within the industry.
For example, Nepra announced in July 2004 that electricity rates would be lowered for
domestic, industrial and agricultural customers in the three distribution areas of Hyderabad,
Peshawar, and Quetta. The distribution companies affected complained that due to the lower
rates, they will be unable to cover their operating costs. Nepra has advised the federal
government to subsidize the providers at a cost of around $24 million. WAPDA and KESC
too blame low rates on weak earnings and enormous debts to fuel suppliers. WAPDA is at
the center of a public sector "circular debt" problem, in which state firms and government
ministries have failed to pay power bills, and WAPDA has failed to meet obligations to them
and to private sector creditors, especially state-owned PSO.
Power theft is a pressing issue in Pakistan. While it is impossible to precisely measure theft
(as opposed to line loss), it is obvious that it constitutes a sizable proportion of Pakistan's
overall 30% loss rate. The situation was so severe by early 1999 that the Pakistani
government assigned army units to look for illegal connections to transmission lines and
rigged meters. Power theft is just one part of the financial problems for WAPDA, however.
Growth in power generation in recent years has come primarily from new independent power
producers (IPP's), some of which have been funded by foreign investors, and a few WAPDA 125 hydroelectric dam projects. The two largest private power plants in Pakistan are the Hub
Power Company (HUBCO) and the Kot Addu power company (KAPCO). HUBCO is owned
by a consortium of International Power (UK), Xenal (Saudi Arabia), and Mitsui Corporation,
and has a 1,300-MW capacity. The Kot Addu plant, with a 1,600-MW capacity, was
privatized in 1996 (from WAPDA), and International Power holds a 36% equity stake, while
the government holds a soon-to-be divested 64% stake. Both of these plants, as well as a
few other small private operators, sell power to the national grid currently run by WAPDA. By
May 2004, International Power cut its holdings in HUBCO from 26% to 16%, after the plant
saw a drop in profits. This is reportedly part of International Power's overall global strategy
and not a comment on the Pakistani energy sector.
In April 2003, the Ministry of Industries and Production announced that it was planning to
build coal-fired power-generation plants in export processing zones and in special industrial
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This note was uploaded on 10/02/2010 for the course MBA 32343 taught by Professor Samghouri during the Spring '10 term at Karachi Institute of Economics & Technology.
- Spring '10