Retiring circular debt: Panel recommends recovering Rs35 billion from IPPs

Proceedings of committee reveal government made undue payments to IPPs in 2013

Our Correspondent February 17, 2017

ISLAMABAD: As the parliamentary investigation into the Rs480-billion circular debt payments progresses, the special panel Thursday backed federal auditors’ recommendations to recover Rs35 billion from Independent Power Producers (IPPs) that were paid to them on flimsy grounds.

The proceedings of the Sub-committee of Senate Standing Committee on Finance revealed that where the government made undue payments to the IPPs in 2013, it compromised on its Rs23 billion genuine claims by not adjusting these against the IPPs’ liabilities.

The panel proceedings established that the National Assembly’s Public Accounts Committee glossed over the Rs480 billion worth audit report by the office of the Auditor General of Pakistan, as the PAC has already set aside the audit objections during its proceedings.

The members of the special panel, belonging to PML-N, PTI and PML-Q, were shocked the way the government made these payments to the IPPs and the PAC’s silence over the matter.


The AGP report has revealed that the PML-N government failed to adequately verify all the claims before retiring the circular debt in 2013 and made undue payments worth Rs165 billion to the power producers.

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

On June 28, 2013, the PML-N government had cleared the Rs480 billion circular debt payments in a single day that too, without performing mandatory pre-audit function, according to the AGP report. According to the report, the finance ministry disregarded the pre-agreed release mechanism as it went on to bypass the Accountant General of Pakistan Revenue and directed the State Bank of Pakistan to release the money.

It was a criminal act to pay Rs32 billion to the IPPs on account of idle capacity charges for the period of 2011 to 2013 when the country had 11 hours to 18 hours a day load shedding, said Senator Saud Majeed.

The audit official informed the panel that the Central Power Purchase Agency (CPPA) did not provide the dispatch orders to establish whether the Rs32 billion payments were justified. The AGP has recommended recovering this amount, which the convener of the committee supported. The committee also had serious objections to Rs2.7 billion payments to the IPPs on account of fuel shortage on part of the IPPs. “The IPPs were rewarded for their failure at the cost of the taxpayers,” said Senator Mohsin Aziz.

The Rs2.7 billion were unjustified payments, said Senator Majeed.

In yet another interesting case, the government paid Rs264.6 million to the IPPs on account of refund of withholding tax. The amount had been recovered from the individual shareholders but returned to the IPP companies.

The CPPA Chief Finance Officer insisted that these payments were the requirement of the Power Purchase Agreements. The panel has asked the CPPA to produce these agreements in the next meeting.

The government also made Rs84 million excessive payments to the IPPs by applying wrong currency exchange rate. The committee backed the AGP proposal to recover this amount from the IPPs.

The audit official informed the panel that contrary to the government’s claim that it has adjusted Rs22.9 billion Liquidated Damages (LD) claims against the IPPs for not providing electricity, this amount has simply been set aside.

The auditors further informed that due to this lapse on part of the government, the IPPs have now gone in the London Court of Arbitration against the government’s decision to withhold this amount.

These damages had been imposed on the IPPs for not generating electricity despite receiving fuel and demand from the government.

The CFO of the CPPA said that the LDs were not adjusted due to their disputed nature.

The most damaging observation of the federal auditor was that most of the Rs480 billion payments were made without producing invoices. He said that so much so these invoices have not been shared with the AGP even after two years.

The committee has asked the CPPA to produce all the relevant record in the next meeting.

Published in The Express Tribune, February 17th, 2017.

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


Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ

Most Read