The Khyber-Pakhtunkhwa government’s recent failure to compel the Centre to release net hydel profit (NHP) arrears and its due principal amount has pushed the province closer to a financial crunch.
“The K-P government has to adjust the gap between its revenue and expenditure either by cutting current expenditures or the Annual Development Programme funds,” said a former provincial government official privy to the matter. “The government has to freeze schemes in the ADP or stop recruitment.”
One official even said the K-P government was already facing financial challenges and was “looking to borrow money from somewhere”.
“The monthly salaries of its employees cost Rs6.5 billion and the provincial administration desperately needed money to complete its development projects,” said another senior official, requesting anonymity. The official added the financial challenges were among the main reasons the K-P government has been pushing the Centre to release arrears as well as the principal amount.
A major chunk of K-P’s budget for fiscal year 2015-16 is based on the NHP and arrears owed by the federal government. Insiders said the Centre, during the last meeting with provincial authorities on December 30, 2015, tricked the K-P administration.
“Federal Minister for Water and Power Khawaja Asif said the meeting was to continue for a second day, but they (central leaders) did not show up,” said an insider. He added Federal Minister for Inter-Provincial Coordination Riaz Hussain Pirzada, federal secretary for water and power, and officials of the finance department had represented the federal government in the meeting.
Chief Minister Pervez Khattak went for the meeting personally with the provincial finance secretary, energy and power secretary and Minister for Energy Atif Khan. The K-P government’s legal adviser was Shumail Ahmed Butt.
Difference in MO
Khattak stressed on the payment of Rs45 billion from the NHP for FY 2005-06 up till 2012 in addition to Rs56 billion as mark-up on the unpaid award amount.
“The finance department will pay the mark-up [Rs56 billion] and the federal government wants the amount to be paid in instalments but the K-P government wants it in one go,” said an official familiar with the matter.
The official said the federal government wanted to adjust the arrears and principal amount for seven years (2005-06 to 2011-12) with the electricity tariff.
“However, the CM wants the money to be released for the K-P government and not be adjusted in the tariff,” he said.
Tariff differential subsidy
He added the federal government also claimed Rs18 billion in outstanding dues owed by the K-P government. The federal government has claimed the amount on account of the tariff differential subsidy which was eliminated in 2011. However, few people went to court against the elimination of the subsidy.
“When the federal government agreed to pay Rs110 billion in arrears, it was decided petitions related to the differential subsidy would be taken back,” the official explained. He stated the federal government calculated Rs18 billion against the K-P government for making use of the differential subsidy despite the fact that it was eliminated.
“The federal government wants to deduct the Rs18 billion from the Rs45 billion arrears and adjust the Rs27 billion in the electricity tariff, paying the amount over three to six years,” said the official. “We want the federal government to sit and discuss the Rs18 billion outstanding against us. If the people of K-P, along with many federal government entities, also used the differential subsidy then should we be responsible for paying their debts?” asked the official.
Help from Centre
He added the provincial government would be in a financial crisis if NHP arrears and mark-up sums were not paid in time. “The provincial government is in hot water right now and the situation will get worse if the Centre does not support it to balance expenditures and revenues.”
Talking about the next meeting and consultation, the official said the chief minister was going to Scotland and the meeting would be held upon his return. K-P Minister for Finance Muzaffar Said was not available for comments despite repeated attempts.
Published in The Express Tribune, January 18th, 2016.