Ministries violate cabinet directive | The Express Tribune


The interim government has violated a decision of the federal cabinet, failing to recover approximately Rs95 billion from publicly-owned power sector companies. Instead, it released Rs131 billion without first deducting its receivables.

This failure by two ministries to implement the cabinet’s decision has resulted in a higher level of budget deficit for the first half of the fiscal year. Recovering loans and cash dividends could have helped maintain a marginally lower overall budget deficit.

Sources revealed to The Express Tribune that neither the Ministry of Finance nor the Ministry of Energy recovered cash loans and dividends while settling the Rs131 billion circular debt of government-owned power sector firms. It was estimated that the government might recover Rs78 billion in the form of old loans and another approximately Rs15 billion in dividend receipts.

Three weeks ago, the Economic Coordination Committee (ECC) of the Cabinet instructed the government to prioritise the recovery of government loans while settling the circular debt of four power sector firms. The ECC decision was subsequently vetted by the federal cabinet. Both ministries are in violation of the cabinet decision.

On December 19, the ECC approved a total payment of Rs264 billion to four government-owned power generation firms. It decided to make the payment in two tranches, and the first tranche of Rs131 billion was released last week, according to sources. However, the payment was made without first recovering the dues.

The ECC had directed that “in the utilisation of the funds received through this arrangement, the government-owned power plants shall accord priority to the clearance of their foreign relent loans and cash development loans.”

The Water and Power Development Authority (Wapda) owed Rs186 billion to the federal government. The idea was to recover at least Rs68 billion from Wapda while releasing the first tranche, according to sources. Similarly, three government-owned power generation companies owed Rs30 billion to the government, but no deduction was made from them.

“The ECC’s decision would be implemented that directed the government-owned power plants to give priority to the settlement of their dues,” said Qamar Abbasi, the spokesperson for the finance ministry.

The Central Power Purchase Agency Guaranteed (CPPAG) has taken undertakings from the three power generation companies to ensure they will make payments. The undertakings were shared with the Ministry of Finance, said Rihan Akhtar, CPPAG CEO.

The sources mentioned that the finance ministry was initially in favour of recovering these dues but subsequently changed its position at the time of making these payments.

There were views that, since these power sector firms face liquidity problems, it would be good to forgo the government’s revenues at this stage. However, this view is against the decision of the ECC, which, in its collective wisdom, decided to recover the loans.

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On the instructions of the International Monetary Fund, the Ministry of Finance has released the first comprehensive report on the performance of the country’s public sector companies. The report reveals how badly the power sector is managed despite almost every company’s board having a representative of the finance ministry and the energy ministry.

The report showed that there were about 22 companies, including power distribution companies, generation companies, transmission companies, and power management companies. The power sector suffered a net loss of Rs320 billion. Wapda earned Rs19.4 billion profit in the fiscal year 2022, according to the finance ministry’s report on the SOEs. Till 2022, Wapda owed Rs56 billion to the federal government in terms of loans, and Rs111 billion guarantees were also issued to facilitate it in borrowing the funds.

Money was also paid to two power generation firms, Muzaffargarh power plant and Guddu power plant. The SOE report showed that the Jamshoro plant incurred a loss of Rs4 billion in 2022 and its equity was negative by Rs17 billion. The return on assets was also negative by 3.4%. Two officers of the finance ministry and the energy minister were the members of the Jamshoro power plant.

The Guddu power plant also incurred Rs6.1 billion losses in 2022, and its return on assets was negative by 3%, and equity too turned negative by Rs7 billion. The Muzaffargarh power plant caused Rs3.7 billion losses, and its return on equity was negative by 4.9%, and return on assets was negative by 1.6%.

Successive governments have failed to privatise power sector firms. The presence of bureaucrats on the boards of these companies is now a part of the problem, as they are not effectively watching the interest of the single shareholder—the government.

Pakistan has committed to the IMF to reduce the circular debt of the power and gas sectors. However, the reduction so far has been done either mainly by increasing the prices of electricity and gas or by providing money from the budget.

A higher level of the gas sector circular debt because of non-settlement of their dues by the power sector companies might also result in a further increase in gas prices to meet commitments with the IMF.

During the first four months of this fiscal year, another Rs300 billion was added to the power sector circular debt, taking it to Rs2.6 trillion. Overall, during the first half, the federal government has paid Rs340 billion to the power sector from the budget.

Published in The Express Tribune, January 4th, 2024.

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