Islamabad:
The caretaker government has violated a federal cabinet decision by failing to recover about Rs 95 billion from public power sector companies. Instead, it released Rs 131 billion without first writing off its claims.
This failure of two ministries to implement the cabinet decision resulted in a higher level of fiscal deficit for the first half of the fiscal year. The recovery of loans and cash dividends could have helped maintain a marginally lower overall budget deficit.
Sources revealed to The Express Tribune that neither the Finance Ministry nor the Power Ministry recovered cash and dividend loans while settling the Rs 131 billion revolving debt of state-owned power sector companies. It was estimated that the government could recover Rs 78 billion in the form of old loans and another around Rs 15 billion in dividend collections.
Three weeks ago, the Economic Coordination Committee (ECC) of the cabinet directed the government to prioritize the recovery of government loans while settling the revolving debt of four power sector companies. The decision of the ECC is then reviewed by the federal cabinet. Both the ministries are violating the cabinet decision.
On December 19, the ECC approved a total payment of Rs 264 billion to four state-owned power companies. It has decided to make the payment in two installments and the first installment of Rs 131 billion was released last week, sources said. However, the payment was made without first recovering the debts.
The CySEC had stipulated that “in using the funds obtained through this agreement, the state-owned power plants will give priority to clearing their foreign loans and cash development loans.”
The Water and Power Development Authority (Wapda) owed Rs 186 billion to the federal government. The idea was to recover at least Rs 68 billion from Wapda when the first tranche was released, sources said. Similarly, three state-owned power companies owed Rs 30 billion to the government, but no deduction was made from them.
“The decision of the ECC will be implemented which led the state-owned power plants to prioritize settlement of their dues,” said Qamar Abbasi, spokesman for the finance ministry.
The Central Power Purchase Guaranteed Agency (CPPAG) has taken commitments from the three power companies to ensure they make payments. The commitments were shared with the Ministry of Finance, said Rihan Akhtar, CEO of CPPAG.
The sources said that the finance ministry was initially in favor of recovering these debts but later changed its position at the time of making these payments.
There were views that since these power sector companies are facing liquidity problems, it would be good to forgo government revenue at this stage. However, this view is contrary to the decision of the Greek Cypriot Council, which in its collective wisdom decided to recover the loans.
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Following instructions from the International Monetary Fund, the Ministry of Finance released the first comprehensive report on the performance of the country’s public sector enterprises. The report reveals how poorly managed the energy sector is despite the fact that almost every company board has a representative from the Ministry of Finance and the Ministry of Energy.
The report showed that there were about 22 companies, including electricity distribution companies, generation companies, transmission companies and energy management companies. The power sector suffered a net loss of Rs 320 billion. Wapda earned Rs 19.4 billion in profit in the 2022 financial year, according to the finance ministry’s report on state-owned enterprises. By 2022, Wapda owed Rs 56 billion to the federal government in terms of loans and guarantees of Rs 111 billion were also issued to facilitate it in borrowing the funds.
Money was also paid to two power generating companies, Muzaffargarh Power Plant and Guddu Power Plant. The SOE report showed that the Jamshoro plant suffered losses of Rs 4 billion in 2022 and its equity was negative by Rs 17 billion. The return on assets was also negative by 3.4%. Two finance ministry officials and the energy minister were the members of the power plant at Jamshoro.
The Guddu power plant also incurred losses of Rs 6.1 billion in 2022 and its return on assets was negative by 3%, and equity turned negative by Rs 7 billion. The Muzaffargarh power plant made a loss of Rs 3.7 billion and had a negative return on equity of 4.9%, and a negative return on assets of 1.6%.
Successive governments have failed to privatize electricity companies. The presence of bureaucrats on the boards of these companies is now a part of the problem as they do not effectively monitor the interest of the shareholder – the government.
Pakistan has committed to the IMF to reduce the cyclical debt of the electricity and gas sectors. However, the reduction so far has been done either mainly by increasing electricity and natural gas prices or by providing money from the budget.
A higher level of the cyclical debt of the natural gas sector due to the non-settlement of their debts by the electricity sector companies may also lead to a further increase in natural gas prices to meet the commitments with the IMF.
During the first four months of this financial year, another Rs 300 billion was added to the power sector’s circular debt, taking it to Rs 2.6 trillion. Overall, during the first half, the federal government has paid Rs 340 billion to the power sector from the budget.
Published in The Express Tribune, January 4u2024.
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