ISLAMABAD: After its hibernation for almost a decade, the government has decided to reactivate the Pakistan Electric Power Company (Pepco) for centralised control and monitoring of all the 10 public sector distribution companies (Discos) as part of a reforms process that may ultimately lead to their privatisation.

Under the plan, the Pepco will act as “Management Agent” for all the Discos through a Management Agent Agreement (MMA) with the approval of the respective boards of directors for assisting the Privatisation Commission or any other agency or department in implementing the government’s privatisation programme and to evaluate and recommend alternative forms of divestment of the shareholding of these independent corporate entities.

“This appears reversal of the cycle that should have been completed two decades ago,” said a power sector official.

Pepco was established in 1998 with a sunset provision of two years as part of corporatisation of the erstwhile Water and Power Development Authority (Wapda) under the World Bank-funded programme that failed to deliver results, partly because of slow progress during tenures of successive governments.

The objective of creation of Discos, generation companies (Gencos) and a transmission company was to establish competitive market or full privatisation. Pepco was to act as the “Managing Agent” for all corporate entities established pursuant to unbundling of Wapda in light of the Council of Common Interests’ (CCI) approval in 1993.

Decision part of reforms before their expected privatisation

Based on a memorandum of agreement between Pepco and ex-Wapda, Discos came under direct control of Pepco till 2012, but the performance of both Pepco and the power companies continued to deteriorate due to influence and intrusion of the erstwhile water and power ministry. Later, as then power minister Syed Naveed Qamar announced in 2011 the decision to abolish Pepco, its board of directors approved its dissolution. But the ministry did not complete its winding up process over the year as needed under SECP requirements.

Over the last few years, Pepco’s role was virtually eliminated although power division officers continued to enjoy its managing director position and perks. The ex-Wapda Discos, however, became corporate entities and fit for the privatisation or competitive market.

Meanwhile, the power regulator issued licences to private distribution and special purpose transmission companies and is currently in the process of formulating a competitive trading model for these companies.

Under the revised MMA, the managing director of Pepco and CEOs of Discos will continue to report to the power secretary in policy and strategic matters. Pepco will have to be revitalised through induction of professionals from the market that may lead to duplication of work and non-performance.

Pepco was gearing up for restructuring of the power sector under an approved plan in the late 1990s when Wapda was handed over to Pakistan Army. Subsequently, retired Lt Gen Zulfiqar Ali Khan, who was then chairman of Wapda, immediately sacked Pepco’s management and took over its charge as well.

Under the proposed MAA, Discos will pay a management fee to Pepco out of consumer tariff as they are already paying “commercial agent” fee to the Central Power Purchasing Agency (CPPA), which could have been given the role of “managing agent” as well for Discos.

The CPPA is supposed to be split in two entities as Special Purpose Trader (SPT) and Market Operator (MO) by 2021 when the latter would become responsible for competitive trading marketing implementation and settlements and could have taken over Disco’s additional role of “managing agent” for successful turnaround and transition to competitive market across the country as well.

Proposal

Documents seen by Dawn suggest the government has desired and requested all Discos to consider a proposal to appoint Pepco as their managing agent through a proper ten-year binding agreement, extendable for another 10 years, to improve the management of the power sector in general and the power distribution sector in particular and to allow the Managing Agent to effectively and properly carry out the functions for which it had been originally set up.

Pepco shall oversee the implementation of government’s vision for the power sector and measures for performance improvement besides facilitating Discos in the formulation of corporate strategies, setting of performance targets and defining planning parameters and evaluation measures. It will also monitor the performance of Discos in matters including technical, financial, revenue, and commercial operations, corporate compliance, governance facilitation and effective human resource management on a uniform basis.

Pepco will also facilitate the Discos in formulating strategies for productivity enhancement and performance improvement, promotion and development of commercial, technical, financial and management skills and structures and carry out special performance audits.

An official said Special Assistant to Prime Minister on Power Shahzad Qasim and a former managing director of K-Electric Naveed Ismail were playing a guiding role in formulating a road map to power sector reforms.

Published in Dawn, August 24th, 2020