Circular debt payments called into question

Govt paid Rs165 billion to power producers it could have avoided: audit report

ISLAMABAD:

In its haste to resolve the electricity crisis and win over the public soon after coming into power, the government failed to adequately verify all the claims before retiring the circular debt and made avoidable payments worth Rs165 billion underscoring a bent towards Independent Power Producers (IPPs).

Auditor General of Pakistan Rana Assad Amin on Wednesday shared findings of a special audit into the Rs480 billion paid to Independent Power Producers and fuel suppliers in June 2013, raising 15 objections on the government’s actions.



According to the audit, ordered by former AGP Akhtar Buland Rana, the government had failed to verify claims of the IPPs as it doled out the sum. The report said that Rs342 billion paid to the Pakistan Electric Power Company (PEPCO) were irregular. PEPCO had subsequently made payments to the IPPs.

Further, the government paid Rs31.7 billion as ‘late payment charges’, which the auditors said were avoidable.

The auditors also objected to Rs25.1 billion non-cash adjustment, terming it “unjustifiable”. But according to another objection, the government did not adjust Rs22.9 billion on account of liquidated damages. IPPs were further favoured when the government made another “unjustified payment” worth Rs18.5 billion on account of General Sales Tax.

Further, an “unjustified” payment of Rs32.5 billion was made on account of idle capacity.

The government made payments worth Rs28.4 billion despite the non-existence and non-renewal of gas supply agreements with the utility companies.



It made Rs2.7 billion unjustified capacity payment, Rs2.4 billion overpayment to Northern Power Generation Company Limited, Rs264 million unjustified payments on account of open cycle cost and Rs14 million were paid by applying higher inflation and wrong currency exchange rates.

The government also made an irregular payment of Rs264.7 million on account of reimbursement of withholding tax on dividends.

Not only did the government fail to verify the claims made, the finance ministry also disregarded a decision by the Economic Coordination Committee of the Cabinet not to pay an extra Rs84.6 million.

According to the report, the finance ministry disregarded the pre-agreed release mechanism as it went on to bypass the Accountant General and directed the State Bank of Pakistan to release the money.

The audit objections belie the incumbent government’s claim that no mega scandal emerged during its tenure.

However, Amin noted that the path adopted by the finance ministry was not unprecedented as payments worth Rs68 billion and Rs35 billion made in 2005-6 and 2007-8 respectively were done in a similar fashion.

Once the payment was made, the government amended the Controller General of Accounts Act to empower the Secretary of Finance to make such payments in the future.

Published in The Express Tribune, January 21^st, 2016.