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Refusal to open escrow account puts Tarbela project at risk

The $906 million Tarbela IV project, with the capacity to generate 1,350 MW of power, is in trouble as the National Transmission Dispatch Company (NTDC) has refused to open the escrow account, mandatory for this important project.

The World Bank has linked the disbursement of $840 million for the project’s completion with the opening of an escrow account. However, due to the influence of the oil lobby, the NTDC top management has refused to open the account. The lobby enjoys influence with top functionaries of the Ministry of Water and Power (MWP), said a senior official.

The World Bank wants the opening of the escrow account to protect the project from circular debt, which, it is feared, will touch Rs792 billion by the end of the current financial year. Under the escrow account, the NTDC would have to deposit the amount for the electricity to be supplied to it under the Tarbela-IV project to avert a cash flow crisis.

The oil lobby does not want Pakistan to increase its reliance on hydro generation for 68 percent electricity generation is taking place on costly diesel and furnace oil, and the oil lobby considers the Tarbela-IV project detrimental to its interests.

This disclosure was made in the latest communication between the Planning Commission and MWP. Copies of the letters that were exchanged between the two authorities are available with The News.

The MWP in its letter dated March 6, 2013 to the Planning Commission secretary said that as per the loan agreement with the World Bank, an escrow account has to be opened. To this effect, Wapda has furnished the draft escrow agreement and standard operating procedures for operating the account.

The NTDC has refused to open the account arguing that if the escrow account for Wapda hydro is established, IPPs based on costly diesel and furnace oil would also demand the same to ensure revenue collection. Owing to poor collection of electricity bills, cash flow has dwindled. As a result, the NTDC and Central Power Purchasing Agency (CPPA) are unable to pay electricity generation companies. Experts say that establishing escrow accounts for IPPs and Wapda hydro is the only way to resolve the issue of circular debt.

In its response to the letter, the Planning Commission argued that Pakistan will not be able to avail a loan of $840 million if the escrow account is not established and this will hamper hydro generation development.

According to the official, under the Tarbela-IV extension project, three turbine units, each having the capacity to generate 450 MW would be installed. The country has the capacity to generate 7,000 MW of hydropower. If the said project materialises, hydro generation will increase to 8,300 MW.

Opening escrow accounts of IPPs and putting an end to the power tariff subsidy extended to all kinds of consumers barring lifeline consumers, is the only way the sector can cope with circular debt, experts say.

The cost of electricity on diesel is Rs21 per unit, on furnace oil Rs18 per unit, hydro power Rs2 to 3 per unit, nuclear Rs4 to 7 per unit and on gas Rs4 to 6 per unit.

The average cost of electricity hovers at Rs12 per unit whereas the notified tariff stands at Rs9 per unit showing the gap of Rs3 per unit.

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