Pakistan News

Govt axes key power sector loan for billing improvement

Govt axes key power sector loan for billing improvement

ISLAMABAD: After paying about $1 million in commitment charges, Pakistan has rejected an Asian Development Bank (ADB) driven $5 billion programme for installation of Advanced Metering Infrastructure (AMI) meters across its power distribution network that was aimed at accurate billing, improved collection and theft reduction.

“The ADB-funded AMI programme (smart metering) had many shortcomings and has been rejected by our Distribution Companies (Discos). There were too many long-term risks for consideration against a nominal fine or commitment charge. The chapter stands closed now,” confirmed a senior official declining to be named.

However, he showed official record to Dawn that suggest the government has now asked the Manila-based lender to divert $1 billion first part of the financing to some other critical areas of distribution network even though a team of ADB threatened the move could ‘blacklist’ its distribution network from future financing.

“If it is closed abruptly, the programme credit rating will be ‘unsatisfactory’ and the ADB board may not approve any future funding for the distribution sector in Pakistan”, a senior ADB official is reported to have recently told Power Minister Sardar Awais Ahmad Khan Leghari in the presence of a number of senior officials from both sides.

The ADB-funded project aimed to automate meter reading

The official said the programme involved replacing 30 per cent existing meters from all Discos, starting with two selected companies and would have run almost a decade to complete and therefore found to be unfeasible. He said the government believed the metering and billing improvement should flow from private sector investment and not through loans that finally attract almost 17pc interest for Discos.

As a consequence, the tendering process initiated by two Discos — Lahore and Islamabad Electric Supply Companies — has been terminated ab initio. “It is better to pay $1m at this stage instead of bleeding the power companies and the consumers for a decade to come,” the official asserted. The programme did not involve a guarantee for post-installation performance and operation and maintenance (O&M) aspect was left open ended.

At the last moment, the ADB offered to introduce O&M aspect for other companies provided the installation of meters in first company — Islamabad — was allowed to move forward as planned. The government rejected the proposal.

The federal government and the board of directors of Discos believed the existing staff at power companies could not be expected to own, maintain and run the AMI infrastructure because it went against their culture and interests. Instead, the private investors should be the better option that could deliver such a programme and win profits through performance.

The ADB contested that it had been working on the project for almost 15 years and designed it in a manner that the AMI network should be connected with banks for payments and provide authentic monitoring at every level and reporting of loadshedding at every feeder. Besides the meter at the consumer premises, two other meters were to be installed — one each at the transformer and the feeder of the grid — to complete a metering tree.

The government had already approved the AMR (automatic meter reading) projects for a number of distribution companies at the level of Central Development Working Party (CDWP) and the Executive Committee of the National Economic Council (Ecnec).

Mr Leghari believed the quantum of overbilling in the distribution network was beyond imaginable levels and a programme designed and implemented externally could not be expected to perform.

Also, it was a contradictory approach to contract foreign loans for the distribution network that lacked institutional capacity and willingness to operate and maintain it, more so when these businesses were on path to privatisation and ultimately lead to creation of a commodity exchange for electricity trading.

The power minister is reported to have told the ADB team that its relationship with Pakistan was too strong to be impacted by shifting of a loan to an alternate area or cancellation of project at the initial stage instead of wasting time, money and effort without positive outcome.

The loan was envisioned in 2002 as part of the larger power sector reforms of that time. Negotiations began in 2012 and the loan was made effective in 2016. If on track, it was scheduled to begin this year.

Published in Dawn, February 15th, 2018

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