Govt pays Rs40b in advance to IPPs in violation of accords

The money was released to help IPPs run plants round the clock.

ISLAMABAD:

The National Transmission and Dispatch Company (NTDC) has provided undue favour to two independent power producers (IPPs), at the cost of public money, as it has made advance payment of Rs40.75 billion in violation of power purchase agreements.

In its audit report for 2011-12, the Auditor General of Pakistan (AGP) observed that no provision for advance payment existed in the power purchase agreements with the IPPs. However, the NTDC made advance payment of Rs40.75 billion to two IPPs – Japan Power Generation Limited and Southern Electrical Power Company – up to May 2011, which violated the power purchase accords.

The auditors termed the extra payment undue assistance to the IPPs. The matter was then taken up with the NTDC management and reported to the Ministry of Water and Power.

In its reply, the management explained that because of the acute shortage of power, advances were paid as financial assistance to the IPPs to keep the plants operational round the clock. The management further said advances were recovered from invoices of the IPPs with mark-up.

However, the auditors pointed out that the reply was not tenable as there was no provision for advance payment to the IPPs in the power purchase agreements. Moreover, the advances were recovered at a nominal mark-up of 4% per annum instead of the market rate of 10%, which amounted to providing undue benefit to the IPPs.

The Departmental Accounts Committee (DAC), in its meeting held on December 19-26, 2011, had directed the NTDC management to refer the matter to the Ministry of Water and Power for a policy decision. The audit also recommended that the directives of DAC, which works under the Ministry of Water and Power, may be implemented.

In another case, the auditors observed that no provision for ‘free first fuel fill’ existed in the power purchase agreement with Hubco. However, Rs802 million was directly paid by the finance ministry to PSO on account of first fill of 128,000 tons of fuel and debited to NTDC accounts.

According to the auditors, since the NTDC was regularly paying fuel cost component to Hubco through energy purchase invoices as per provisions of the power purchase agreement, such payment was not admissible and required to be recovered. Violation of the provision of power purchase agreement resulted in double payment of Rs802 million.

The matter was then taken up with the NTDC management, which stated that the payment had been released directly by the finance ministry to PSO in compliance with a decision of the Economic Coordination Committee (ECC) taken in its meeting held on October 31, 2003 and not by NTDC.

The DAC, in its meeting held on December 19-26, 2011, did not agree with the reply of the management and recommended to place the audit report before the Public Accounts Committee (PAC).

Published In The Express Tribune, June 17^th, 2012.