ISLAMABAD: The Ministry of Finance on Wednesday admitted that it booked Rs64 billion as non-tax revenue on account of sale proceeds of two power plants despite the fact the buyer company – Pakistan Development Fund Limited (PDFL) – exists only on paper.
“After conducting extensive negotiations with stakeholders, including with Ministry of Water & Power, the PDFL injected money in two projects and acquired shares worth Rs64 billion, which was paid to the federal government as non-tax receipts,” said Ministry of Finance.
The ministry issued this statement in response to a story of The Express Tribune, which reported that the government double booked Rs64 billion of the PDFL to understate budget deficit for the fiscal year 2016-17 despite that the PDFL money had already been taken into account in previous fiscal year.
The story said the PDFL money had been booked in fiscal year 2014-15. In fact, it had been booked in 2013-14 as ‘statistical discrepancy’ that provided the due advantage to the government despite placing it under ‘foreign grants’.
In its response, the ministry said it was intimated for the information of the public that the PDFL had been incorporated as a Non-Banking Financial Institution with the objective of financing and investment in infrastructure projects.
The PDFL identified two power projects – Haveli Bahadur Shah and Balloki owned by the National Power Parks Management Company Limited (NPPMCL) – where it could make investments out of the funds available with it.
However, the ministry did not explain the process that it adopted to select the PDFL for selling stakes of these two power plants. The sale of the government assets is considered as divestment, which requires many steps including due diligence, selection of financial advisers, evaluators, calling bids and short-listing of prospective bidders.
The divestment is the subject of the Privatisation Commission but it had not been involved in this process, said the sources. Instead, the Finance Ministry moved a summary to the federal government, seeking its permission to sell these power plants to the PDFL.
The purpose of the summary was to replace a portion of Rs114 billion Cash Development Loans given for two power projects’ construction. The debt had been acquired at Kibor plus 3% interest rate and the ministry offered to replace it with Kibor plus 2.75% by availing the PDFL money on the pretext it will reduce tariff. In return, the ministry offered the equity stakes of these two power plants to the PDFL.
The summary was subsequently sent to the Ministry of Water and Power for ‘comments’ that asked to seek resolutions of the two boards – the PDFL Board and the NPPMCL Board, said the sources.
Moreover, the government has not yet hired a full-time chief executive officer of the PDFL, as the secretary finance serves as its interim CEO. The finance minister is the chairman of the board.
The PDFL does not have an office and it has not yet recruited staff. This raises question who decided to use the PDFL funds when everything is at initial stage of establishment.
While setting up the PDFL, the government had announced that it would ensure development of infrastructure in the country. However, in case of acquisition of the two power plants, no additional investment was made. Only the ownership of the plants was changed from the NPPMCL to the PDFL.
This showed that the only purpose of this transaction was to understate the budget deficit by taking into an amount that had already been booked, as from the financing side the deficit was close to 6.3% of GDP. But the Finance Division spokesman has expressed indignation and concern over the news report.
Finance Ministry’s contention
The spokesman for the Finance Ministry said Rs64 billion “amount was never taken as government revenue receipt but was a foreign grant and placed under external financing”.
He further said: “This was booked as expense of federal government as grant-in-aid to Pakistan Development Fund Limited (PDFL) during the 2013-14”.
What the Finance Ministry did not explain was that in fiscal year 2013-14 accounts, it showed huge ‘statistical discrepancy’ of Rs215 billion that included Rs157 billion of Saudi Arabian gift, which it subsequently parked in the PDFL.
By showing the statistical discrepancy, the ministry took the cash balance benefit of the PDFL amount in fiscal year 2013-14. Still, it insisted that the report on understatement of budget deficit was an “attempt through misstatements, innuendos and conjectures to malign completely legitimate transactions”.