Energy_Financial_Sector_Claims.pdf

IQC 391 – I – 11 – 00003

AID – 391 – 14 – 00001

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 1 of 23 AAA-TCI

Disclaimer:

This Project is made possible by the support of the American people through the United

States Agency for International Development (USAID). The opinion expressed herein are those of the author(s) and do not necessarily reflect the views of USAID, A. A. Associates or

Techno-Consult International.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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Data Collection, Review and Preparation of

International Tender Document for the Diamer Basha Dam Project

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

OVERVIEW AND INSIGHTS

Prepared by : Huzefa Mazahir Ali

Revised by : -

Approved by : Azher uddin Khan

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 3 of 23 AAA-TCI

Data Collection, Review and Preparation of

International Tender Document for the Diamer Basha Dam Project

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

OVERVIEW AND INSIGHTS

Table of Content

1.0 ASSIGNMENT BACKGROUND

1.1 SCOPE OF INVESTMENT SPECIALIST

1.2 SCOPE OF THIS REPORT

1.3 LIMITATIONS

1.4 METHODOLOGY

2.0 EXECUTIVE SUMMARY

3.0 WAPDA: A BRIEF BACKGROUND

4.0 WAPDA’S PROJECTS UNDER CONSTRUCTION

5.0 PROJECTS READY FOR IMPLEMENTATION

6.0 PROJECTS UNDER STUDY

7.0 FUTURE PROJECTS

8.0 WAPDA’S FINANCIAL POSITION

9.0 PAKISTAN’S FISCAL PROBLEMS

10.0 CONCLUSIONS AND RECOMMENDATIONS

11.0 BIBLIOGRAPHY

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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1.0 ASSIGNMENT BACKGROUND

Diamer Bhasha Dam Project (DBDP) is vital project for Pakistan. When completed it will have a gross storage capacity of 8.1 million acre-feet (MAF), live storage of approximately 6.4 MAF and an installed power generation capacity of 4,500 megawatts (MW), yielding about 19,000 gigawatt hours (GWh) annually.

The United States Agency for International Development (USAID) is supporting the

Government of Pakistan (GOP) in developing the project and more particularly in attracting financing for the project. USAID has currently engaged an advisory consortium to carry out preliminary environmental, technical and financial studies.

The purpose of this exercise is to undertake a rapid data review of the existing work done and advise on any potential issues which may need to be addressed prior to launching this project.

1.1 SCOPE OF INVESTMENT SPECIALIST

The advisory consortium’s scope of work has been divided into environmental, technical and financial aspects. With regards to financial aspects, the

Consultants/Investment Specialist has four deliverables which are as under:

1. Power Sector Overview

2. Energy sector financial claims on GoP and WAPDA

3. Diamer Bhasha Dam Project financing

4. Terms of Reference for appointment of financial consultants

1.2 SCOPE OF THIS REPORT

This report is the final deliverable as part of the on-going assignment. The scope of this report entails a literature review of on-going projects by WAPDA and the implied future claims on the organization vis-à-vis funding these projects. Furthermore, this report also provides data on the liability of WAPDA with respect to already completed works on Diamer Bhasha project.

1.3 LIMITATIONS

In preparing this report, detailed information was requested from WAPDA regarding the following items:

a. List of all projects planned/under consideration by WAPDA.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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b. Approximate project costs of all these projects. along with the anticipated funding schedule and completion dates

c. WAPDA’s commitments and contingent liabilities vis-à-vis all these projects and the timing of funds injection

d. Prioritization of projects (if done internally) – i.e. which projects would be prioritized for funding in case of shortfall in funds

e. WAPDA’s existing revenue sources and revenue numbers and their forecasts.

Estimates of surplus cash available with WAPDA on a year on year basis (if available)

f. Comments on the likelihood of generating the funds committed for the Diamer

Bhasha project

The ‘Scope of this Report’ essentially entails a literature review of existing information. However, the rationale for soliciting aforementioned information was to gauge whether WAPDA would have the surplus cash available for meeting its equity commitment against its various projects. In particular, assessment of availability of funds especially for Diamer Bhasha Project was required as this is by far the largest project in terms of cost. The information provided was not sufficient to carry out the required analysis.

1.4 METHODOLOGY

As mentioned above, information was solicited from WAPDA regarding various projects undertaken by it, WAPDA’s own revenue and surplus cash position forecast, prioritization of projects etc. for the purpose of compiling this report. However, relevant information was not provided by WAPDA. In consideration of the data limitations, this report has been based on publically available information – extracted from WAPDA’s website. The information available and compiled in this report addresses the basic scope requirements. It is also sufficient to undertake a high level assessment of WAPDA’s capacity for successfully undertaking its entire project pipeline although for more thorough analysis further information will be needed which is not forthcoming at this stage.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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2.0 EXECUTIVE SUMMARY

Energy shortfall has been increasing in Pakistan for the past several years and demand continues to outstrip production of gas and electricity in the country.

Despite several measures taken by the previous government, prolonged and frequent power cuts not only affected production activities, but also disrupted daily life. It is estimated that the current supply-demand gap in Pakistan stands at around

4500MW to 5000MW.

As per the new energy policy ‘National Power Policy of 2013’ the country’s policy makers are targeting increasing electricity supply as well as reducing its cost. As part of this initiative the government has decided to utilize the relatively low cost indigenous fuel sources (coal and hydro power) for generating electricity. In the short to medium term period, coal based power projects will be installed and existing RFO based power plants will be converted to coal. Initially coal demand will be met through imports and gradually Thar Coal will be introduced into the mix. In the medium to long term period, hydro power potential will be exploited through development of multipurpose dams.

Multipurpose dams are essentials for Pakistan’s economy as they serve a dual purpose of water storage (important for promoting agriculture) and power generation. WAPDA, the organization responsible for developing and operating state owned power projects has announced several new projects and it is trying to accelerate work on projects already under construction. In the medium term period, several projects are under development, the largest of these projects, Neelum-

Jhelum with a capacity of 969 MWh is slated to come online in 2016.

WAPDA’s project pipeline appears ambitious. It has announced several high profile projects including Diamer Bhasha and Dasu which will reportedly cost in excess of

US$ 13.6 Bn and US$ 7.5 Bn respectively. WAPDA’s financial position while satisfactory (it is a profit making entity) is not strong enough to be able to finance the equity component of these projects on its own - ts net profit in FY12 was around

US$ 100 million. The authority also suffers from cash flow issues as, being a government owned entity, it has a lower priority than the private sector IPPs when it comes to circular debt payments.

Given the paucity of funds at its disposal and cash flow constraints, WAPDA will have to rely on higher Public Sector Development Program (PSDP) allocations (budgetary grants) to successfully complete these projects. However, given the large fiscal deficit faced by Pakistan, it is unlikely that the government will be able to provide funds on timely basis or in sufficient quantity for WAPDA to be able to accomplish its project’s development objectives.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 7 of 23 AAA-TCI

In view of the aforementioned situation, WAPDA and GoP are trying to secure financing from external sources, including friendly countries (United States, Gulf countries and China) and multilateral agencies such as World Bank and Asian

Development Bank. Attracting private sources of capital/financing will be challenging in the current macroeconomic scenario, given Pakistan’s low credit rating and unsatisfactory macroeconomic indicators.

The Chinese government and state owned corporations in China have recently indicated their interest in financing coal and hydropower projects in Pakistan. There are indications that China will be willing to grant soft loans of up to US$ 22 Billion for investment in various power projects1, including Diamer Bhasha project.

Furthermore, World Bank and Asian Development Bank have also indicated that they will provide funds for financing the Dasu Dam project.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 8 of 23 AAA-TCI

3.0 WAPDA: A BRIEF BACKGROUND

WAPDA (Water and Power Development Authority) was created in 1958 as a semi-autonomous body for the purpose of coordinating and giving a unified direction for the development of schemes in Water and Power sectors, which were previously being dealt with the respective Electricity and Irrigation Departments.

In 1997, the National Electric Power Regulatory Authority (NEPRA) was established.

NEPRA is responsible for issuing licenses for power generation, transmission and distribution, setting and enforcing performance standards and codes of practices, enforcing competitive policies, and setting charges for the monopoly parts of the power industry. It is also mandated to protect consumers against monopolistic prices, encourage efficiency in licensee operations through financial incentives, encourage economic efficiency by promoting competition, and eliminate cross-subsidies between regions and consumer groups.

In December 1998, the WAPDA Act was amended, allowing for the creation of

Pakistan Electric Power Company (PEPCO), and unbundling of WAPDA’s Power Wing into: eight (8) distribution companies (formed from existing area boards);

three (3) generating companies (comprising 11 of WAPDA’s generating plants); and

National Transmission and Dispatch Company (NTDC).

Since October 2007, WAPDA has been bifurcated into two distinct entities i.e.

WAPDA and Pakistan Electric Power Company (PEPCO). WAPDA is responsible for water and hydropower development whereas PEPCO is vested with the responsibility of thermal power generation, transmission, distribution and billing.

There is an independent Chairman and MD for PEPCO, replacing Chairman of

WAPDA. WAPDA is now fully responsible for the development of hydel power and water sector projects.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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4.0 WAPDA’S PROJECTS UNDER CONSTRUCTION

WAPDA has established a master plan to build new hydropower projects in the country. The master plan includes long-term, medium term and short-term hydropower projects. Short term projects currently under construction include

Neelum-Jhelum, Golen Gol, and Khurram Tangi. Naulong dam and Tarbela dam’s fourth extension hydropower projects are also ready for the construction, which will add another 1,414 megawatt of electricity to the system by 2017.

Current projects under construction have faced shortage of funds and their timelines have consequently been stretched. Allai Khwar Hydropower project was originally envisaged to be completed in June 2007; however due to lack of sufficient financing, the project got delayed and was finally completed in February 2013.

Khan Khwar Hydropower project is another project which was targeted for completion on October 2007. However it’s actual completion date was April 2012, due to delayed availability of funds. Jinnah Hydro Power was envisaged to be completed in 2010-11, however as per revised-information provided by WAPDA its completion was expected to take place in October 2013.

Neelum-Jhelum is another project currently under construction, which is to be completed by 2015-16. However, shortage of funds have slowed the construction phase. Planning Commission officials have stated that only PKR 4bn2 of the allocated sum of PKR 24bn, which were due to be provided by June 2013, have been released.

PC Officials are awaiting a loan from Export-Import Bank of China, which is anticipated to be available during the first quarter of 2014 and will accelerate the execution of the project.

http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/ http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/ http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 10 of 23 AAA-TCI

HYDROPOWER PROJECTS UNDER CONSTRUCTION3

S.no. Project Capacity (MWh)

Reservoir

Capacity

(MAF)

Projecte d

Cost

(Rs Mn)

Revised

Cost

(Rs Mn)4

Breakup

Local FCE

1 Allai khwaar 121 ROR* 8,392 13,835 7,313 6,522

2 Khan Khwaar 72 ROR 3,929 8,301 4,574 3,728

3 Duber khwaar 130 ROR 9,127 16,324 8,069 8,256

4 Jinnah Hydro** 96 ROR 940 13,568 N/A N/A

5 Neelum Jhelum 969 ROR 130,356 274,882 NA NA

*ROR means run of the river projects

**Revised project cost was provided in US$ and has been converted to PKR using PKR/US$ rate of 106 http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

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ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 11 of 23 AAA-TCI

5.0 PROJECTS READY FOR IMPLEMENTATION

Government of Pakistan decided to construct five multi-purpose dams (water storage and hydropower generation) in the country during the next 10-12 years. As per 2012 report, Bhasha dam will be undertaken in the first phase. This project is located on the Indus River. Key features of the dam include its ability to generate over 4500MW of electricity and live water storage capacity of 6.4 MAF.

Projects which are ready for Implementation are awaiting funds for their timely completion. Of these Golen Gol has secured financing from Saudi Fund for

Development which has announced to provide it US$57 million5. The project was to be completed by 2011, however it is still ongoing. The project is located on Golen

Gol Nullah a tributary of Mastuj River 25Km from Chitral Town in Khyber

Paktunkhwa. On its completion the project will produce 106 MW, the time of construction will be 4 years.

Khurram Tangi is another project ready for implementation, and has been allocated

PKR 500m, which WAPDA has described as inadequate allocation. The project was conceived by WAPDA for a multipurpose dam in North Wazirstan on Kurram River with storage of 1.20 MAF of water, and power generation of 83.4MW on completion.

As per WAPDA reports, the feasibility study along with detailed engineering and tender documents were completed in June 2007. A total of 210 acres of land has been acquired so far and PKR 17m have been paid to local authorities. However, it has also stated that such sites face security threats due to their location, which will delay its timely construction period.

http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 12 of 23 AAA-TCI

HYDROPOWER PROJECTS READY FOR IMPLEMENTATION6

S.no. Project Capacity (MWh)

Reservoir

Capacity

(MAF)

Project

Cost

(Rs Mn)

Revised

Cost

(Rs Mn)7

1 Diamer Bhasha 4,500 6.50 66,1840 1,450,504*

2 Golen Gol 106 ROR 12,454 N/A

3 Kurram Tangi 83 1.2 53,493 74,200*

* Revised project cost was provided in US$ and has been converted to PKR using PKR/US$ rate of 106

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ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 13 of 23 AAA-TCI

6.0 PROJECTS UNDER STUDY

Projects under study consist of sixteen projects, which include Tarbela Dam’s fourth extension. Due to extensive sediment inflows in the river water, current dams

(Tabela, Mangla & Chasma) are rapidly losing their capacities. By the year 2025, these storages would lose 37%8 of their capacity. Hence, up gradation will extend its life.

The Keyal Khwar Project will add 122 MW of power to the national grid. WAPDA has managed to obtain Eu 77m9 from Germany for the project under the loan agreement and has been given Eu 20m more in supplementary requirement. The project has so far progressed 40% to completion.

** Revised project cost was provided in Euro and has been converted to PKR using PKR/Euro rate of 144

Projects for USAID Assistance (On-going-New) For 2013-2018 http://www.nation.com.pk/business/21-Jul-2013/keyal-khawar-project-to-generate-122mw http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

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HYDROPOWER PROJECTS UNDER STUDY10

S.no. Project Capacity (MWh)

Reservoir

Capacity

(MAF)

Projected

Cost

(Rs Mn)

Revised

Cost

(Rs Mn)11

Tarbela 4th Ext.

960 ROR 56,400 96,354*

2 Munda 740 0.70 72,000 148,506*

3 Kohala 1,100 ROR 172,400 225,000*

4 Keyal Khwar 122 ROR 11,650 27,648**

5 Phandar 80 ROR 5,600 13,487*

6 Basho 28 ROR 3,200 9,752*

7 Harpo 33 ROR 3,600 15,294**

8 Lawi 70 ROR 7,070 9,599 http://www.nation.com.pk/business/21-Jul-2013/keyal-khawar-project-to-generate-122mw http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 14 of 23 AAA-TCI

Dasu dam is another large hydro project, where World Bank was approached to finance its construction. The project cost is an estimated USD7.5bn12 project and once completed it will have the capacity to generate 4,320MW. The site for Dasu power project is 74KM downstream from Diamer Basha dam.

Bunji dam is another project under consideration. It has the capability to generate

7,100MW of electricity and would cost in excess of US$ 7Bn. During 200913 Pakistan and China signed an MoU for its construction. During 201314, WAPDA announced that it had completed detailed engineering design and tender documents of the project. The project is located on the Indus river near Gilgit.

HYDROPOWER PROJECTS UNDER STUDY15

S.no Project Capacity (MWh)

Reservoir

Capacity

(MAF)

Project

Cost

(Rs Mn)

Revised

Cost

(Rs Mn)16

9 Dasu 4,320 6.70 624,000 795,000*

10 Bunji 7,100 0.06 547,040 724,828*

11 Akhori 600 6.00 264,000 466,000*

Lower Spat gah

496 ROR 49,120 80,942*

13 Palas Valley 665 ROR 53,360 80,942*

14 Thakot 2,800 0.16 480,000 636,000*

15 Dudhnial 800 1.00 144,000 N/A

Mangla dam Raising

N/A N/A 62,553 101,384 http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/ http://www.nation.com.pk/politics/23-Aug-2009/Chinese-firm-to-build-Bunji-Dam http://tribune.com.pk/story/545248/blueprints-of-bunji-dam-complete/ http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

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FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/ http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/ http://www.nation.com.pk/politics/23-Aug-2009/Chinese-firm-to-build-Bunji-Dam http://tribune.com.pk/story/545248/blueprints-of-bunji-dam-complete/ http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 15 of 23 AAA-TCI

Akhori dam power project is another project under study, it will be located across

Nanda Kas a small tributary of Haro river in Attock district of Punjab. Current estimates suggest that the dam will be built at a cost of USD 4.40bn and will have capacity to generate 600 MW of electricity.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 16 of 23 AAA-TCI

7.0 FUTURE PROJECTS

Several projects that have been planned for the future are currently at the feasibility stage. We will have to wait till 2022 for the start of the first one, provided all of its detailed design and tender documents are ready by then. Judging from past experience, it is very likely that the projected costs will change materially due to the time factor involved. The extent of delay in project development much will depend on the government’s ability to negotiate finance from International donor agencies and its ability to complete existing projects.

HYDROPOWER FUTURE PROJECTS17

S.no. Project Capacity (MWh)

Reservoir

Capacity

(MAF)

Projected

Cost

(Rs Mn)

1 Yulbo 3,000 0.12 540,000

2 Tungas 2,200 0.05 336,000

3 Skardu 1,600 5.50 660,000

4 Yugo 520 5.00 240,000

Pakistan’s agriculture contributes over 2118% to the GDP. Building multipurpose dams will help in resolving the country’s twin problems, water shortage during Rabi

(Winter harvest) season and help generate power. Due to power shortages during

2012-13, 2% were wiped out from our GDP.

FEDD756EAAC9/FinalDownload/DownloadId-

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FEDD756EAAC9/pdf/financialinvestment.pdf http://finance.gov.pk/survey/chapters_13/executive%20summary.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://finance.gov.pk/survey/chapters_13/executive%20summary.pdf

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

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8.0 WAPDA’S FINANCIAL POSITION

WAPDA is one of the largest organizations in Pakistan, as evident from its asset base which is in excess of PKR 969 Billion (as at June 30, 2012). Its financial performance is also satisfactory and it is a profit making entity. In FY12 its net profits were around

PKR 10 Billion. The entity however suffers from the omnipresent Circular Debt issue.

In FY12 WAPDA, had receivables of PKR 95 bn whereas its short term debt was around PKR 70 bn, which is typical of entities facing circular debt issue. Being a governmental entity, WAPDA does not have a priority position for receiving payments for electricity sold when compared to private sector entities.

The table below summarizes the balance sheet of WAPDA:

WAPDA Consolidated Balance Sheet 2012

PKR Million

Total Fixed Assets 766,488

Current Assets

Stocks and Spares 2,743

Printing Work in progress 1

Sundry Debtors 84,151

Endowment funds for sports 80

Advances 4,638

Other Receivables 95,462

Short term Investments 8,505

Cash and Bank Balances 7,262

Total Current Assets 203,024

Total Assets 969,512

Total Capital/ Contributions & Surplus 755,431

Total Non- Current liabilities 108,872

Current liabilities

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

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From an operating standpoint, WAPDA’s cash flow position is not stressed as it is able to obtain short term loans from banks to finance its receivables as these are generally considered to be recoverable. However, WAPDA’s ability to tap long term sources of financing is impacted as a result of the circular debt issue. When viewed in the context of WAPDA’s development projects pipeline it becomes obvious that it would not have the necessary resources to finance the targeted projects without having access to PSDP allocations.

Deposits 194

Creditors 2,296

Accounts Payables 26,455

Current Portion of Loans and Bonds 5,906

Short Term Liabilities and Borrowings 69,993

Accruals and other liabilities 362

Total Current liabilities 105,208

Total Capital and liabilities 969,512

Source: http://www.wapda.gov.pk/

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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9.0 PAKISTAN’S FISCAL PROBLEMS

For the past few years, Pakistan’s economy has been suffering as a result of deficits in its current and fiscal accounts. Higher current account deficits has drained the country’s foreign exchange reserves thereby impacting its credit rating. The lower credit rating in turn deters investment as well as necessitates obtaining loans from multilateral agencies such as International Monetary Fund (IMF) as lenders of last resort. These institutions usually have a standard policy prescription which calls for tighter monetary policy and reducing budgetary deficits through increased revenue collection or controlling expenses.

In Pakistan, successive governments have failed to undertake needed reforms for improving revenue collection due to political and other reasons. This is evident from

Pakistan’s tax to GDP ratio, currently estimated by FBR to be around 9% against a developing country benchmark of 14%-15%. Without meaningful increases on the revenue side, the government has little room for flexibility and has to comply with

IMF policy prescriptions, including slashing development expenditure. Reducing other major expenditure heads such as defense spending is not possible as Pakistan has been fighting a war against terrorism across the country, particularly in the province of KPK, and suffers from insurgency in its Baluchistan province. This has been a recurrent theme of the last two decades, with some improvement seen during 2005-07 when external flows improved (the current account deficit turned into surplus).

In view of the aforementioned, WAPDA’s strategy of relying on higher PSDP allocations for completing its projects is not likely to succeed. For instance WAPDA received only PKR 9.5bn19 out of its allocation of PKR 27.5bn under the PSDP for the year 2009-10. This financial constriction continued in FY11 when its PSDP share was reduced from PKR 15.36bn to PKR 9.5bn. In FY13 its allocated share was PKR 30bn of which only 20bn was released.

In view of the financial constraints GoP and WAPDA have made conscientious efforts in generating financial resources for projects which are of national importance.

Dialogue has been initiated with various multilateral agencies for financing the larger projects and it appears that World Bank may approve a US$ 700 Million loan for

Dasu Dam.

Moreover, after assuming office, the government of PML-N has actively solicited

Chinese investment in Pakistan and it appears that some breakthroughs may be

Projects for USAID Assistance (On-going-New) For 2013-2018

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

Page 20 of 23 AAA-TCI made in this respect. Chinese government and state owned corporations have recently indicated their interest in financing coal and hydropower projects in

Pakistan. It is estimated that China will be willing to grant soft loans of upto US$ 22

Billion for investment in various power projects including Diamer Bhasha project with the quid pro quo of its companies supplying the needed equipment.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

Data Collection, Review and Preparation of International Tender document for the Diamer Bhasha Dam Project

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10.0 CONCLUSIONS AND RECOMMENDATIONS

► It appears that WAPDA does not have a priority list of projects. When faced with capital rationing the most obvious solution is to prioritize certain projects (which have a higher economic utility). Available funds can then be diverted to these projects which will ensure their timely completion. Delays in completion usually result in cost overruns which combined with already stressed funding availability can compound the problem

► Greater private sector participation needs to be encouraged. Sites with higher hydropower potential and limited storage requirements such as run of the river projects need to be developed under a Public Private Partnership mode. This would ensure availability of more electricity while reducing WAPDA’s obligations to complete all the projects on its own.

► WAPDA can consider creating separate project entities/project companies for undertaking various projects. This would improve project visibility and because of a ring fenced structure, help in attracting project financing. Requisite third party credit enhancements (such as GoP guarantee and securitization of

WAPDA’s assets) can be provided to improve the prospects of financial close.

This can be done for priority projects like Diamer Bhasha.

ENERGY SECTOR FINANCIAL CLAIMS ON GOP/WAPDA

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11.0 BIBLIOGRAPHY

1. http://www.thenews.com.pk/Todays-News-13-28050-China-reveals-its-cards-for-investing-$20-billion-in-Pakistan

2. http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/

3. http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/FinalDownload/DownloadId-

5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/pdf/financialinvestment.pdf

4. http://www.wapda.gov.pk/

5. http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html

6. http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/FinalDownload/DownloadId-

5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/pdf/financialinvestment.pdf

7. http://www.wapda.gov.pk/

8. Projects for USAID Assistance (On-going-New) For 2013-2018

9. http://www.nation.com.pk/business/21-Jul-2013/keyal-khawar-project-to-generate-122mw

10. http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/FinalDownload/DownloadId-

5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/pdf/financialinvestment.pdf

11. http://www.wapda.gov.pk/

12. http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/

13. http://www.nation.com.pk/politics/23-Aug-2009/Chinese-firm-to-build-Bunji-

Dam

14. http://tribune.com.pk/story/545248/blueprints-of-bunji-dam-complete/

15. http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/FinalDownload/DownloadId-

5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/pdf/financialinvestment.pdf

16. http://www.wapda.gov.pk/ http://www.thenews.com.pk/Todays-News-13-28050-China-reveals-its-cards-for-investing-$20-billion-in-Pakistan http://www.thenews.com.pk/Todays-News-13-28050-China-reveals-its-cards-for-investing-$20-billion-in-Pakistan http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/ http://tribune.com.pk/story/653249/stuttered-progress-cash-crunch-slows-down-neelum-jhelum-project/ http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/ http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html http://www.hydroworld.com/articles/2013/11/saudi-fund-increases-financing-for-pakistan-s-golen-gol-hydropower-plant.html http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/ http://www.nation.com.pk/business/21-Jul-2013/keyal-khawar-project-to-generate-122mw http://www.nation.com.pk/business/21-Jul-2013/keyal-khawar-project-to-generate-122mw http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/ http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/ http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/ http://www.nation.com.pk/politics/23-Aug-2009/Chinese-firm-to-build-Bunji-Dam http://www.nation.com.pk/politics/23-Aug-2009/Chinese-firm-to-build-Bunji-Dam http://tribune.com.pk/story/545248/blueprints-of-bunji-dam-complete/ http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf

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17. http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/FinalDownload/DownloadId-

5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-

FEDD756EAAC9/pdf/financialinvestment.pdf

18. http://finance.gov.pk/survey/chapters_13/executive%20summary.pdf

19. Projects for USAID Assistance (On-going-New) For 2013-2018 http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://www.wapda.gov.pk/4216E522-9F89-4331-A0B5-FEDD756EAAC9/FinalDownload/DownloadId-5AF17FE18FED509ED52F2E2654E3187C/4216E522-9F89-4331-A0B5-FEDD756EAAC9/pdf/financialinvestment.pdf http://finance.gov.pk/survey/chapters_13/executive%20summary.pdf