Subsidy by another name: Punjab, Islamabad paying AJK’s bills

IESCO charges Kashmiris less than cost of production and makes its other customers pay the difference.

ISLAMABAD:

For the past several years, the Islamabad Electric Supply Company (Iesco) has charged its customers in Islamabad and Punjab a higher tariff in order to finance subsidised power to Azad Jammu and Kashmir, according to an audit report compiled by the United States Agency for International Development (USAID).

The audit report reveals that the state-owned Iesco is selling electricity to consumers in AJK at below cost price, and making up for the lost revenues by charging higher rates from its customers in Islamabad and four adjoining districts in Punjab: Rawalpindi, Attock, Chakwal and Jhelum.

“Sales to AJK, due to the below cost tariff, constitute a cross subsidy paid for by the remainder of IESCO‘s consumers,” finds the report.

Electricity sales to Azad Jammu and Kashmir constitute less than a tenth of all revenues for Iesco, which is one of nine electricity distribution companies in the country, with a 12% share of the power supplied to the national grid.

The study found that Iesco faced considerable financial difficulties owing to its disputes over the supply of electricity to the AJK government. In addition, the company is forced to pay taxes on all of its outstanding bills, even though it only able to collect about 84% of units billed.

The USAID report recommends that Iesco should be exempted from paying taxes against unpaid bills and should be able to settle its tax bill with the government against unpaid bills by various government departments.

The report also recommended that Iesco should cease to function as a power supplier and should act simply as a transport agent for power delivered by the Central Power Purchasing Agency. This change in status would take away the financial liability associated with supplying power to Azad Jammu and Kashmir.

Yet while Iesco faces many challenges beyond its direct control, the company was also found to have discrepancies in its reporting system. For instance, for the fiscal year 2010, a preliminary loss analysis of five feeders by USAID suggests that the technical losses in the transmission lines were 13.7% of the total power produced, yet Iesco only reported 9.8% losses for that year.

The USAID report recommends undertaking initiatives to ensure greater transparency and better corporate governance to convert Iesco into a functioning business. The report claims that meter reading practices currently employed are subject to influence by operations management.

The company also remains subject to political intervention, and the Board of Directors has not been empowered to oversee a true corporate entity. The recent replacement of the board by the government has left Iesco in a state of some uncertainty, it adds.

Published in The Express Tribune, July 17^th, 2011.