WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Companys Overview:
WAPDA, the Pakistan Water and Power Development Authority, was created in 1958 as a SemiAutonomous Body for the purpose of coordinating and giving a unified direction to the development of schemes in Water and Power Sectors, which were previously being dealt with, by the respective Electricity and Irrigation Department of the Provinces.

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 (PEPCO) replacing Chairman WAPDA and Member (Power) who was previously holding the additional charges of these posts.

WAPDA is now fully responsible for the development of Hydel Power and Water Sector Projects.

PEPCO has been fully empowered and is responsible for the management of all the affairs of corporatized nine Distribution Companies (DISCOs), four Generation Companies (GENCOs) and a National Transmission Dispatch Company (NTDC). These companies are working under independent Board of Directors (Chairman and some Directors are from Private Sectors).

The Companies are administratively autonomous and leading to financial autonomy by restructuring their balance sheets by bringing their equity position to at least 20 percent, required to meet the prudential regulations and to facilitate financing from commercial sector (approved by ECC).

The Loan Liability Transfer Agreements (LLTA) has been signed with Corporate Entities and execution of loan transfer is complete.

All Entities have the physical possessions of all their operational assets. On 24th Feb. 2007 Ministry of Water & Power notified NEPRA approved Tariff for all Distribution Companies replacing unified WAPDA Tariff.

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Legal Agreements such as Business Transfer Agreements, Operation Development Agreement, Energy Supply Agreement, Business Supplementary Agreement and Fuel Supply Agreement etc. were executed between WAPDA and Corporate Entities to facilitate commercial operations.

Regulatory instruments like Grid Code, Distribution Codes, Performance Standard for Distribution Companies and Transmission Companies were drafted and got approved from in 2007.

All major lenders gave their consent for transfer of their loan from WAPDA to Corporate Entities, thus 326 loan assumption agreements were signed amongst respective Companies, WAPDA and EAD (Economic Affairs Division) GOP.

CPPA is established under the coverage of NTDC for payments from DISCOs to IPPs, GENCOs and NTDC. Ultimately, it will function independently under Federal Govt. and all forthcoming IPPs will be under CPPA.

Charter of Duties of WAPDA:

The Charter of Duties of WAPDA is to investigate, plan and execute schemes for the following fields: a. Generation, Transmission and Distribution of Power. b. Irrigation, Water Supply and Drainage. c. Prevention of Water logging and Reclamation of Waterlogged and Saline Lands. d. Flood Management. e. Inland Navigation. The Authority comprises of a Chairman and three (3) Members working through a Secretary. WAPDA is one of the largest employers of human resources in Pakistan. Over the years WAPDA has built-up a reservoir of Technical know-how and expertise which has made it a modern and progressive organization.

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Objectives:
In 1992, the Strategic Plan for restructuring the Pakistan Power Sector (PPS) was approved by the GOP/CCI. As a part of the restructuring process, WAPDA's functions under Water Wing and Power Wing were to be segregated in the following manner:

Unified Power wing of WAPDA comprising of Generation, Transmission and Distribution to be restructured into fourteen (14) public limited companies under the corporate law.

Restructure power sector assets to form autonomous commercial entities through the adoption of prudent business practices, enhanced efficiency levels, cost reduction and profit orientation

Promote competition to eventually offer affordable electricity to customers. Through corporatization / commercialization process, promote commercial viability and enhance business value of the assets block of each corporate entity.

Enhance privatization initiatives

Accomplishments:
Major accomplishments to-date is as follows:

Operationalized Pakistan Electric Power Company (PEPCO) as a Private limited management company owned by Government of Pakistan (GOP) to steer, manage and oversee the corporatization/commercialization reforms program.

Formed fourteen (14) Corporate Entities as following:

Four (4) Thermal Power Generation Companies (GENCOs) One (1) National Transmission & Power Dispatch Company (NTDC) Nine (9) Distribution Companies (DISCOs) Constituted Board of Directors of the corporate entities with the induction of Directors from the private sector and PEPCO to utilize their experience for formulation of effective corporate policies.

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Executed Legal agreements such as Business Transfer Agreements (BTA), Operation and Development Agreement (ODA), Electricity Supply Agreements (ESA), Bulk Supply Agreements (BSA) and Fuel Supply Agreements (FSA) between WAPDA and corporate entities for autonomous commercial operation.

Transfer of WAPDA staff to the respective corporate entities (Manpower Transition Program Phase-I completed). Phase II is scheduled for completion by June, 2000.

Obtained Federal Tax Exemptions for the corporate entities for Capital Value Tax, Income tax and Wealth Tax.

Obtained consent of most of the creditors Prepared, reviewed, approved and adopted opening Balance Sheets of the corporate entities as of 30-06-1998.

Privatization schedule for Faisalabad Electric Supply Company (FESCO) finalized & sent to the Privatization Commission of Pakistan

Investment Plans for Distribution Power System Rehabilitation prepared and finalized by the Distribution companies

Financial Restructuring of WAPDA approved by GOP Filed applications by all Power Distribution Companies (DISCOs) for obtaining License from National Electric Power Regulatory Authority (NEPRA). Public hearing by NEPRA for processing of applications of Lahore Electric Power Supply Company (LESCO) and Gujranwala Electric Power Company (GEPCO) completed

Submitted proposal to GOP for Price consideration to be paid or settled by GOP with WAPDA so that share of the corporate entities owned by WAPDA can be transferred in the name of GOP

Future Activities:
To accelerate the corporatization process, following activities will be undertaken:

Rationalization of transfer prices of power from GENCOs to NTDC and NTDC to DISCOs and seeks NEPRA approval.

Initiate study to assess the merits of corporatization and privatization of Hydel Generation facilities

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Identification & transfer of residual assets and employees to the corporate entities

Characteristics of Monopoly:
High Barriers to Entry:
WAPDA is a typical example of the kind of monopoly in which the Government monopolizes a utility sector for the welfare of the public. Although we can see WAPDA isnt doing as good a job as such monopolies tend to do, but this monopoly of WAPDA has its advantages as well. In the power industry in Pakistan, WAPDA has got virtually no competition, relatively smaller companies such as KESC (Karachi Electric Supply Company) and few other power distribution companies not owned by WAPDA do not pose any threat whatsoever to the monopoly of WAPDA in power generation and distribution. So WAPDA create barriers to new entry .If we look at the market structure of WAPDA, it is a pure monopoly.

Profit Maker:
Customers have to pay for the electricity at any rate to fulfill their needs as they have no other option. As we all know there is no other electricity provider in the whole of Pakistan except WAPDA, and electricity is a necessity so, on increasing or decreasing the rates, they would not loose their customers

Single Seller:
In a monopoly there is one seller of the good which produces all the output. Therefore, WAPDA authority being served by a single entity, and for practical purposes, the authority is the same as the industry.

Price Discrimination:
A monopolist can change the price and quality of the product. WAPDA sells more quantities charging fewer prices for their services in an elastic market situation and sells less quantities charging high price in a less elastic market condition.

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

Price Control:
In a monopoly WAPDA, on account of a single market entity controlling supply and demand, degree of price and supply control exerted by the enterprise or the individual is greater. The absence of competition spares the monopolizing company from price pressure. Nevertheless, to evade the entry from new market participants, Monopoly has scope for entrepreneurship to make available limited goods and/or services at a higher price. The price and production decisions of such firms target profit maximizing via predetermined quantity choice. This helps to cut even on the marginal and revenue outcomes.

Price Elasticity:
With regards to the demand of the product or service offered by WAPDA monopolizing, the price elasticity to absolute value ratio is dictated by price increase and market demand. It is not uncommon to see surplus and/or a loss categorized as 'dead-weight' within a monopoly. The latter refers to gain that evades both, the consumer and the monopolist.

Lack of Innovation:
On account of absolute market control, WAPDA display a tendency to lose efficiency over a period of time. With a one-product-shelf-life, innovative designing and marketing techniques take a back seat. Now new projects are introduced for innovations.

Sources of monopoly power

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

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WAPDA AS A MONOPOLISTIC AUTHORITY IN PAKISTAN

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