Three more energy companies turn unprofitable

Fesco, Iesco and Mepco report financial losses for fiscal year ended June last year

ISLAMABAD: Despite availing billions of dollars as foreign loans for energy sector reforms, three more public sector power distribution companies have become unprofitable by the end of the third year of PML-N’s rule and have incurred losses worth Rs31 billion.

Faisalabad Electricity Supply Company (Fesco), Islamabad Electricity Supply Company (Iesco) and Multan Electricity Power Company (Mepco) reported financial losses for fiscal year 2015-16 that ended in June last year, according to official documents and balance sheets of the companies.

Out of nine government-owned power distribution companies, seven are now running into losses, speaking volumes about the inefficiency and mismanagement of the power sector under the PML-N government. The only remaining government-owned profitable companies are Lahore and Gujranwala power distribution companies, although the balance sheets of Lahore Electric Supply Company (Lesco) are not publically available yet.



Struggling companies

Fesco reported Rs13.31 billion losses in the last fiscal year compared to Rs5.22 billion profit in the preceding year, according to the company’s balance sheet. Iesco, once the jewel of the distribution sector, reported Rs7.75 billion losses in fiscal year 2015-16 as against Rs2.74 billion profit in the previous year.  Their boards approved the audited accounts of Fesco and Iesco two months ago.

Mepco, which showed a Rs9.8-billion profit in fiscal year 2014-15, also became unprofitable in fiscal year 2015-16 and booked Rs10.3 billion losses, according to a company official. He said that delay in determination and notifications of electricity tariffs and subsequent reimbursements to the customers were the reasons for the losses.

Energy sector reforms were the linchpin of the $6.2 billion three-year International Monetary Fund (IMF) programme and the policy loans given by the Asian Development Bank (ADB) and the World Bank during past three years. In addition to availing the IMF loan, the ADB, the WB and Japan have also given over $2.2 billion for energy sector reforms during past three years.

Since 2014, the ADB has approved $1.2 billion in budgetary support in return for commitments to cut electricity subsidies, fast track privatisation and run the power sector on a commercial basis.

Govt’s plan in trouble?

The overall deterioration in the financial condition of the power sector companies brings into question the government’s policy to abandon the privatisation of these companies.



“It was clearly informed by the Minister of Water and Power that under orders of prime minister, the privatisation process of all DISCOs and GENCOs is to be stopped with immediate effect,” according to the official documents. In January last year, the Ministry of Water and Power had also issued a letter to Fesco management, barring it from communicating with the Privatisation Commission.

After abandoning privatisation, the Cabinet Committee on Privatisation (CCOP) directed to start the process of listing of these companies on the stock market instead of privatising them, which has also now hit obstacles after these companies reported losses.

However, Gujranwala Electric Power Company (Gepco) posted Rs10.2 billon profit and now the government has decided to list it on the stock market.

Listing of shares of Fesco and Iesco at the Pakistan Stock Exchange is no more possible given their present financial situation. Both entities fail to meet the requisite listing and regulatory compliance, said the officials.

Ministry’s version

The companies registered financial losses due to delay in payments of subsidies and unjustified taxation by the Federal Board of Revenue, said Yasir Shakeel, Spokesperson of the Ministry of Water and Power. He said that the companies showed improvement on account of reducing line losses and improving recovery of the bills.

However, blockage of payments of subsidies to understate the budget deficit and excessive taxation to inflate revenues are not the new reasons, said the sources. The finance ministry has been indulging in these tactics to deceive the IMF and other donors about the budgetary performance, they added.

Iesco has shown Rs13.7 billion as taxes receivables and Rs7.8 billion outstanding subsidies receivables in fiscal year 2015-16. Even these figures were higher in fiscal year 2014-15 when the company showed Rs2.8 billion profit.



Another Ministry of Water and Power official insisted that the overall trends of the power distribution companies were positive. He said that although most of the companies were incurring losses, the quantum of losses was less compared with the previous years.

He said that the FBR was creating sales tax demands even on the amount lost due to high line losses and less recoveries.

Published in The Express Tribune, January 31^st, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.