Revaluating Wapda assets

According to a Business Recorder exclusive, the Water and Power Development Authority (Wapda) has decided to revaluate its assets under present market rates and offer part of what is expected to be an increase to the general public. The obvious objective of this decision is to generate resources that are sorely required to finance large hydel infrastructure projects that, according to recent reports, are being held hostage to a rise in the budgeted current expenditure attributable to the ongoing military operations against terrorism. Thus, on the one hand, revaluating assets would enable Wapda to access the higher commercial funding, though private commercial banks maintain that they are overexposed to the power sector, but also enable the entity to issue bonds that could be sold to the general public.

Such a decision is in line with the Wapda Act that empowers the entity to seek resources from (i) internal cash generation; (ii) grants made by the government; (iii) loans obtained from the government; (iv) sale proceeds of bonds issued under the authority of the government; (v) loans obtained from financial institutions; (vi) foreign loans obtained from the World Bank, etc; and (vii) all other sums received by the Authority. Wapda’s internal cash generation remains severely limited mainly because its income is limited to sale of hydel electricity and water at heavily subsidised rates while a cash-strapped federal government has been compelled to slash budgeted hydel projects’ disbursements that has included funds for ongoing mega hydel projects. At the same time it is relevant to note that multilaterals and bilaterals have increasingly withdrawn funding for mega hydel energy projects throughout the world premised on their environment and resettlement policies. An example is the withdrawal of the earlier commitment by the Asian Development Bank for the 12 billion dollar Diamer-Bhasha dam in 2012. That essentially places pressure on revenue generation on Wapda itself, which is the reason behind the decision of the Authority to re-evaluate its assets.

Wapda floated seven issues starting in 1987-88 with the last one issued in 1995 at a rate of 5 percent (four issues were at 10 percent – in 1990, 1992, 1993, 1994) with the final one maturing in 2005 and there was never any hint of a default. But this period was before Wapda’s bifurcation in 2007 with Wapda since left with responsibility for only hydel and water sector projects. Be that as it may, the Wapda bonds were highly successful at the time and represented a positive way to boost the stock market as well as develop a secondary bond market. Analysts also correctly maintain that with the increasingly tight money laundering rules throughout the world black money could be channeled into infrastructure development through the offer of bonds by Wapda with certain guarantees as to the source of funds.

On 14th September, 2005 a presentation was made during the first Islamic banking and money market conference on Debut Local Currency Sukuk issue for Wapda whereby 600 million dollars were proposed as the principal amount, with a maturity date of 2010 at 6-month Libor plus 220 basis points and highway land (motorway) was the underlying asset.

The last consolidated balance sheet uploaded on Wapda website is at June 30, 2013, and therefore none has been uploaded since the PML-N government took over control on 6th June, 2013. Interestingly enough the balance sheet shows more capital works (in progress and completed) for the water wing at 342.7 billion rupees as opposed to the water wing (52.4 billion rupees). If current assets are included the situation is reversed with total current assets of the water wing at 5.7 billion rupees and power wing’s 139 billion rupees. Total current liabilities of the water wing were 4.2 billion rupees while that of the power wing was 39 billion rupees with non-current liabilities estimated at 23.6 billion rupees and 87 billion rupees respectively. The balance sheet notes current maturity of loans and bonds at 6.57 billion rupees under the power wing and it is unclear whether the proposed sukuk was issued and maturity deferred. One would hope that the federal government urges Wapda to update its website and place the consolidated balance sheet for 2014 for general public’s perusal – a factor that would strengthen the perception of transparency in the Authority, which is a critical factor in luring investors.