Fiscal Policy Statement 2016-17: Parliament kept in dark about power sector losses

Out of nine govt-owned power distribution companies, seven are now running into losses.

ISLAMABAD: The government has kept parliament in the dark about financial deterioration in the power sector and has not mentioned three electricity distribution companies (DISCOs) that reported losses last year in its fiscal policy statement submitted to the legislature on Monday.

The Fiscal Policy Statement 2016-17 is silent about the DISCOs’ performance even though their hemorrhaging carries financial implications. Just one brief para in the statement about power distribution and generation companies only talks about their divestment plan.

“Financial advisors have been hired for structuring public offerings for the distribution companies (DISCOs) and generation companies (GENCOs),” read the policy statement. Save for Gujrawala Electric Power Company (Gepco), no DISCO can for now be listed at the Pakistan Stock Exchange due to dismal financial health. Faisalabad Electricity Supply Company (Fesco), Islamabad Electricity Supply Company (Iesco) and Multan Electricity Power Company (Mepco) reported financial losses for fiscal year 2015-16.

Out of nine government-owned DISCOs, seven are now running into losses. 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.  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.

The government informed parliament that it has restarted the process of attracting strategic private sector participation in Pakistan Steel Mills and would complete the process by June this year. However, the deadline seems unrealistic, as before finding a partner the government needs to sort out PSM’s financial liabilities and gas supply, which remains suspended since June 2015. The government has also not disclosed the losses incurred by PIA during the last fiscal year. It informed parliament that a business plan for PIA has been developed, which envisages the introduction of fuel efficient aircraft, route rationalisation, and focus on core and noncore activities.

Fiscal performance

While sharing its fiscal performance for 2015-16, the government admitted before NA that the power sector subsidies exceeded the budgetary allocation of Rs118 billion. Actual subsidies stood at Rs171.2 billion despite the fact that the government has not fully paid all the outstanding subsidies to DISCOs. Fesco alone showed Rs7.8 billion outstanding subsidies.

Overall, against budgeted subsidies of Rs137.6 billion, actual subsidies stood at Rs207.2 billion. For the last fiscal year, the government had also missed the budget deficit target despite slashing the development spending due to missing of the total revenue target and higher than budgeted current expenditures. It missed the total revenue target by Rs187 billion. In order to offset the impact of missing the revenue target and making room for more current expenditures, the federal and provincial governments cut their development budgets.

Published in The Express Tribune, February 1^st, 2017.