Power secretary cautioned that the IPPs may serve notice of sovereign default and power generation may reduce due to drying up of credit lines. PHOTO: FILE
Power plants and PSO may default on Liquefied Natural Gas and furnace oil payments in coming days due to nonpayment of power subsidies by the Ministry of Finance, wrote Secretary Water and Power Younus Dagha to Fawad Hasan Fawad, Secretary to the premier, in a “most urgent”, message.
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The letter to the PM not only appears an admission of the persistent financial crisis in the power sector but also drops a hint about estranged relations between two key ministries of the federal government.
Dagha has informed the premier through his Secretary that an amount of Rs283.2 billion of the power sector was stuck due to the Ministry of Finance and Revenue. Out of that Rs174.94 billion are on account of subsidies and Rs108.2 billion General Sales Tax Refunds, blocked by the Federal Board of Revenue (FBR).
“The burden of Rs283.2 billion is becoming an unbearable cash flow constraint, which is bound to lead to a full fledge crisis, if not resolved on priority,” cautioned the Secretary Water and Power to the Prime Minister.
The Secretary Water and Power’s letter to the PM’s Office also appears an indictment of the finance ministry, as he has accused the ministry of understating the budget of electricity subsidies.
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“Due to deficient budgeting of the subsidies, the power sector subsidies have accumulated to Rs174.97 billion, resulting in non-payments to Independent Power Producers (IPP) in this financial year along with increase in payables of PSO,” he wrote.
At the time of making budget for the current financial year, the finance ministry did not book subsidies on account of various pending policy decisions related to the power sector, according to another official of the water and power ministry.
He said that the Ministry of Finance has not booked the impact of Rs24 billion payments of General Sales Tax on electricity bills of Federally Administrated Tribal Areas (FATA) and over Rs20 billion arrears of subsidy on agriculture tube-wells in Balochistan. He said that the finance ministry has also not budgeted the Rs66 billion tariff differential subsidies to AJK consumers and roughly Rs28 billion subsidies of K-Electric.
The Ministry of Finance did not comment on the issue.
Financial allocation
For the current financial year 2016-17, the federal government has allocated Rs118 billion for power subsidies - down from last year’s spending of Rs171.2 billion.
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Even after paying Rs480 billion in 2013, the power sector circular debt increased to Rs665 billion by June this year including the amount parked in a power holding company.
The power secretary warned that the following events may occur in the coming days to due to present financial crisis. He cautioned that the IPPs may serve notice of sovereign default and power generation may reduce due to drying up of their credit lines. The PSO may default in furnace oil payments and LNG payments to their supplier and reduced supplies to the power plants. Resultantly, reduced generation may lead to non-observance of the load shedding plan, he added.
Despite claiming to improve the performance of the power sector in past three and half years, the government has not been able to address the core issues leading to the bleeding of the sector.
The admission of financial crisis in the power sector reflects poor performance of the PML-N government that won the election in 2013 on the promise to end load-shedding within a stipulated time.
The Ministry of Water and Power has demanded that the finance ministry may clear Rs175 billion subsidies dues through a supplementary budget. It has also demanded that either the subsidies to the electricity consumers may be rationalised or the government may make appropriate budgetary provisions.
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The power ministry has also demanded that the issue of Rs108.2 billion General Sales Tax (GST) refunds may be settled immediately and the FBR should immediately stop seizing power distribution companies’ accounts to meet its revenue targets.
“The unfair imposition of GST continues and so does the frequent seizure of accounts despite prime minister’s instructions, causing drain of billions of rupees every months on false claims by FBR officials to just to meet their revenue collection targets,” stated the Secretary Water and Power.
Published in The Express Tribune, December 28th, 2016.
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