Circular debt: Audit firm hired to uncover overpayment allegations

Industry people claim billions have been overpaid while wiping off circular debt.

Shahbaz Rana July 22, 2013
The Ministry of Finance had wiped Rs342 billion off the circular debt before June 30 and the remaining Rs138 billion was cleared on July 20. PHOTO: FILE


Amid revelations of overpayment of billions of rupees to oil suppliers and power producers while clearing Rs480 billion worth of circular debt, the federal government has hired an audit firm, Deloitte Pakistan, to unearth any wrongdoing.

The move came in an attempt to address the concerns of industry people, but also exposed ill-planning by the Ministry of Finance that made huge payments running into billions of rupees without performing a pre-audit of the claims. The responsible government ministries did admit to the hiring of the audit firm, but shifted responsibility on each other.

Services of Deloitte Pakistan, owned by Asad Ali Shah, the son of Sindh Chief Minister Qaim Ali Shah, were hired after complaints of making payments to the oil suppliers against shipments that were never made and against electricity that was never produced, revealed sources in the ministries of water and power and finance.

Denting its credibility further, the Ministry of Water and Power did not invite bids from audit firms and instead picked Deloitte to perform the task, which may expose corrupt elements of the past regime and in the new government as well, sources said.

Issues of oil theft and fake electricity generation had also come in the limelight during the tenure of the previous government, but they were swept under the carpet as some of the federal ministers were said to be involved in the dirty business, sources said.

So far, nothing can be said with certainty but according to allegations levelled by the industry people and the sources, the overpayments have been estimated at over Rs50 billion out of Rs480 billion. Sources said there were differences between Finance Minister Ishaq Dar and Finance Secretary Dr Waqar Masood on the same issue but Dar pushed ahead with his plan to clear the circular debt.

The Ministry of Finance had wiped Rs342 billion off the circular debt before June 30 and the remaining Rs138 billion was cleared on July 20. Out of the Rs480 billion, Rs75 billion was paid to Hub power plant, Rs41.4 billion to Kapco, Rs6.9 billion to AES Pakgen, Rs4.6 billion to AES Lalpir, Rs9.9 billion to Liberty power plant, Rs19.2 billion to Uch plant, Rs8.6 billion to Rousch power plant and Rs8.9 billion to Engro power plant.

An amount of Rs26 billion was paid to PSO in cash in addition to Rs48.6 billion in shape of bonds.

“The Ministry of Finance made payments on the basis of certified accounts provided by the Ministry of Water and Power,” said Shafqat Jalil, the Director General Media of the Finance Ministry. He said the audit firm was also hired by the Ministry of Water and Power.

Pakistan Electric Power Company (Pepco) provided reconciled accounts to the water and power ministry that handed over the list to the finance ministry, thus, responsibility for any irregular payment would fall on the water and power ministry, officials said.

However, Water and Power Minister Khawaja Asif said his ministry had nothing to do with the circular debt payments and hiring of the audit firm. “The audit has been ordered by the Ministry of Finance,” he added.

According to a senior official of the finance ministry, the audit of debt payments was part of a recent agreement with the International Monetary Fund and was made part of the deal on the insistence of Asian Development Bank.

Special Assistant to Prime Minister Dr Mussadaq Malik said figures of independent power producers (IPPs) and power purchasers often did not match, underscoring the need for a third party audit.

He admitted that oil theft was going on in the power sector and 7% to 10% of oil payments were siphoned off by the oil mafia. The theft was continuing in connivance with PSO officials and IPPs, he added.

Malik said the government made payments to the IPPs on the basis of net power generation but there was no mechanism to verify the efficiency claims of the IPPs, which say they were consuming more oil due to low efficiency.

IPPs’ Advisory Council Chairman Abdullah Yousuf claimed that the IPPs received payments on the basis of reconciled figures and said the audit firm was hired to check leakages in the government system.

Published in The Express Tribune, July 23rd, 2013.

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H... | 10 years ago | Reply

@M-ALI He is an influential partner of Deloitte and can influence the outcome of the audit report. Giving favorable audit reports is not uncommon.

S. A. Shaikh | 10 years ago | Reply

It was important to clear the circular debt without further delay. The power generation cannot be improved if generation companies have no money. If over payment is discovered in the audit, it can easily be adjusted against future payments to these companies. These companies are regularly selling power to the governent there should be no problem in recovering the amount overpaid (if any).

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