Energy crisis: Provinces to lose power if they don’t pay bills

Federal, provincial govts agree to treat depts the same as private entities.

ISLAMABAD:

In what appears an effort to address the rising financial crisis within the energy sector, the federal and provincial governments on Monday agreed to allow power companies to cut off the electricity supply of provincial government departments that fail to pay their bills, although Punjab and Sindh were quick to insert caveats into the agreement.

The unusualy decision was reached against the backdrop of mounting unpaid power bills by the provinces, which have now reached Rs80 billion. This amount does not include outstanding dues from the Federally Administrated Tribal Areas and Azad Jammu and Kashmir.

In a meeting between the federal and provincial governments, all sides agreed in principle to treat government departments the same as private entities. However, Punjab insisted on exemptions for several departments that were placed on a ‘negative’ list that will continue to receive electricity even if they do not pay their bills, according to one government official privy to the discussions.

The single biggest defaulter on electricity bills is the Sindh government, whose departments collectively owe Rs37 billion to the power companies. The provincial government, however, has contested this claim by the Hyderabad Electric Power Company (Hesco). A federal official is expected to rule on the dispute later this month, at a date that has not yet been specified.

Despite the agreement, government officials remain sceptical of the ability of the parties to enforce the agreement, said one official. “It would be a big challenge for any enforcing agency to cut electricity supplies in Sindh, Khyber-Pakthunkhwa and Balochistan,” he added.

The federal and provincial governments were unable to develop a mechanism to ensure that the Rs80 billion in outstanding bills is actually collected. In the past, such collection efforts have been stymied by provinces suing power companies in the provincial high courts, despite the fact that the federal government has appointed a federal adjuster to help prevent precisely this sort of litigation.

The federal government has allocated Rs10 billion for electricity bills of provincial and local governments, but a water and power ministry official said that the total amount outstanding exceeds Rs50 billion.

Sales tax on services

The federation and the provinces have agreed to resolve their disputes over the collection and disbursement of sales taxes on services by creating a committee, headed Federal Board of Revenue Chairman Salman Siddiqui, and including representation from all four provincial capitals. The need for a new agreement comes as the old agreement, signed last September between Islamabad and the provinces, is expiring on September 28. The committee will be tasked with submitting its recommendations within the next two weeks.

Under the last agreement, the federal government would collect taxes on seven services including banking, insurance, stock market, advertising, construction and franchises. The federation would then disburse these taxes to the provinces, but would end up disbursing 36% more than it collected since each province was unwilling to compromise on the amount it received.

Provinces refuse to take NCHD and NEF

In a surprising twist in the devolution process, all provinces except Sindh have refused to accept responsibility for the National Commission for Human Development and the National Education Foundation, despite the fact that these organisations are meant to be devolved to the provinces under the 18th Amendment to the constitution.

Published in The Express Tribune, July 5^th, 2011.