KE irked by government's audit of subsidy move

MUSHTAQ GHUMMAN

ISLAMABAD: The management of Karachi Electric (KE) has reportedly expressed it serious reservations against the federal government for sending a team to conduct an audit of subsidy worth billions of rupees given by the federal government from 2003-04 to 2012-13, well-informed sources toldBusiness Recorder. K-E was resisting the federal government's move to conduct an audit of the subsidy for the last several years.

The sources said, Ministry of Water and Power recently provided invoices of subsidy and wrote a letter to the government audit to start an audit of KE. However, when the audit team landed in KE's building, the latter exhibited its reluctance to provide the record. A team of KE officials rushed to Islamabad and met with different functionaries of the federal government including the Finance Minister Senator Ishaq Dar and complained that the Ministry of Water and Power is creating hurdles in smooth transfer of the entity's control from Abraaj Group of Dubai to Shanghai Electric Power (SEP).

M/s SEP would acquire 66.4 per cent stake in K-Electric for $1.77 billion and the authorities hope that the company would immediately invest $1.7 billion to upgrade the distribution and transmission system. The company has also promised to invest $9 billion in future.

However, the government officials argue that Abraaj is taking away $1.5 billion from Pakistan immediately whereas the promised investment will be made in 9-10 years. Senate Standing Committee on Water and Power had also decided to conduct a performance audit of K-Electric through Auditor General of Pakistan aimed at judging the performance of the power utility with the company resisting sharing its data with the auditors.

The sources said, KE management is for early clearance of the deal between Abraaj and SEP of China. According to sources, M/s SEP maintains that the Government of Pakistan should sign Implementation Agreement (IA) with it but the Ministry of Water and Power is resisting it, arguing that since GoP is not selling its shares in KE then why should it sign a new IA.

Ministry of Water and Power also argues that it is a deal between two private parties which has nothing to do with the GoP and offered to sign the financial agreement. A meeting presided over by the Minister for Water and Power decided that Power Purchase Agreement (PPA) should be extended till December 31, 2019 which would be renewable subject to mutual consent and power supply agreement may be made irrevocable and on take-or-pay basis.

The meeting further decided that the price of power supply cost should be taken at marginal cost basis in the future. Since KE was not paying the bill for the 650MW electricity to the Central Power Purchasing Agency (CPPA) regularly on one or the other pretext, the meeting decided that Standby Letter of Credit (SBLC) mechanism should be implemented. And delay in payment by the KE should be subject to Kibour plus 300 bps as was already the case.

According to KE, it has paid a substantial amount to the NTDC against supply of Rs 650 MW electricity in recent months to clear the backlog. Ministry of Water and Power, sources said, has also turned down a condition of the Chinese company suggesting that GoP may not sell its remaining share to any party. The sources said, GoP has made it clear that the new buyers would have to prepare a plan to eliminate power load shedding in Karachi by 2018 as was announced by the Prime Minister Nawaz Sharif.