Acceding that checking inefficiencies and unnecessary fiscal leakages in public sector entities was beyond its control, the government has finally decided to out source the operations and maintenance (O&M) contracts for the four public sector power generation companies (GENCOs) to private contractors.
Secretary Finance Waqar Masud Khan said on Tuesday that the Economic Coordination Committee of the Cabinet (ECC) has approved the concept paper to grant operations and maintenance contracts of GENCOs to private sector contractors. An implementation committee has been formed under the chairmanship of minister for water and power, having representatives from the ministry of petroleum and planning commission. The private contractors would not have hiring and firing powers. They would enter into contract with GENCOs through agreements with their board of directors. The government would have no role in the agreements. This means the sole government representative would be the chief executive officer, while the private contractor would be Chief Operating Officer of the company. An official source said that the ministry of water and power had approached the ECC with the concept paper prepared by the Private Power and Infrastructure Board (PPIB). The paper said that the Pakistan Electric Power Company’s (PEPCO) plan for restructuring GENCOs required an investment of $166 million in addition to United States Agency for International Development (USAID) assistance of $ 51.6 million for additional 1220 MW from three GENCOs of Jamshoro, Guddu and Muzuffargarh.
These three GENCOs had a generation capacity of 4829 MW which over the years deteriorated to 3580 MW. However, the available limit ranged between 1400 MW and 2000 MW during the last few years. If private sector contractors managed to improve the efficiency of GENCOs by 33 per cent, they could enhance power generation to 1243 MW, helping save Rs81.6 billion per annum. At present, USAID has prepared a plan for their upgradation that envisages enhancement of efficiency in the Jamshoro thermal plant by 245 MW, Guddu 380 MW and Muzuffargarh 595 MW. The ministry of water and power was of the opinion that due to inefficiency, limited fiscal space and circular debt, the government was not in a position to invest $166 million and the private sector should be included in their efficiency enhancement initiative.
It was proposed that PPIB should be allowed to draft the rationale and rules for holding open bidding for O&M contracts for the four GENCOs. The proposal says that the government would not have to give any mobilisation advance and there was no capital expenditure to be made by the GENCOs. There would be no requirement to revise the tariff upwards, as private contractors would make profits by simply improving the efficiency of GENCOs. It recommends a unit-wise multi-year baseline tariff for a 10-year period for each power station, having single baseline for fuel, variable and fixed O&M components.
Theoretically, the source said, the plan could be implemented, as Karachi Electric Power Company (KESC) was already implementing such a plan, outsourcing all O&M contracts for power generation to companies manned by former WAPDA employees. However, he said the risks were too high as the government had no finances available for improving the efficiency of GENCOs. Private contractors could bring efficiency only if they were provided adequate financing to run the plants. Private sector Independent Power Producers (IPPs) have good efficiency, even many years after their investment while the GENCO efficiency has deteriorated significantly over the years. He explained that IPPs invested on the average $1.2 million per megawatt while GENCOs were set up with an investment of $0.3 million per megawatt. Apparently the solution is excellent, but the implementation committee has no experts, which could result in litigation if proper homework was not done, he said, adding that it was better if government includes experts in the committee to give a successful start to the process.
