"Lack of generation capacity, constraints in the transmission and distribution systems, financial management and sustainability of the sector entities and corporate governance structure are the key challenges for the successor companies of Wapda," the sources quoted the bank's fact-finding mission saying in a report recently submitted to the government.
The mission, which discussed overall performance of the power sector, was of the view that Pakistan's power sector is facing major challenges in supporting the government strategy to increase electricity supply to its urban and rural population.
"Nearly 45 percent of the population does not have access to electricity and the power sector, a key infrastructure provider will have to increase its capacity to sustain economic growth target of the MTDF," the bank observed.
According to the government plans, Central Power Purchase Agency (CPPA) was scheduled to start its operations as an autonomous entity in July 2006, but the government has faced difficulty in achieving this goal because of the complex nature of the entity, which would act as the centre of the demand and supply of the electricity market.
The government would spend 1.1825 billion dollar to streamline the system of which the ADB would extend 950,000 dollar as technical assistance.
Commenting on the impact and outcome of technical assistance, the bank said that it would improve efficiency in the power sector in lowering the cost of electricity for consumers.
The merit order implementation further enhanced by the CPPA would foster the incentives and environment for power generators to actively seek cost efficiency in their operations and act to set benchmarks for the power sector, the bank maintained.
However, the bank said that financial viability and credibility of CPPA is vital for Independent Power Producers (IPPs) since the new organisation is intended to be the counterpart of power purchase agreement.
The CPPA function has made up most of the losses for National Transmission and Dispatch Company (NTDC). However, currently, the generation tariffs have adjusted to reach cost recovery but the consumer tariffs have lagged behind.
The gap is accumulated in NTDC accounts as losses and the outstanding receivables from distribution companies have also burdened the financial accounts of NTDC.
However, the financial legacy of the CPPA function would be passed on to the autonomous entity and the financial viability of the entity would affect the attractiveness of the power sector for future investment by the commercial participants, the bank questioned.
It is worth mentioning that the World Bank (WB) is not satisfied with the pace of restructuring process and expressed reluctance to fund projects until power sector companies are made completely independent.