ISLAMABAD: The Auditor General of Pakistan (AGP) has declared appointment of incumbent Board of Directors (BoD) of Lahore Electric Supply Company (LESCO) as “political driven”, as some of the Board members have serious conflict of interest.
According to audit, during performance audit of BoDs of LESCO for the year 2022-23, it was observed that the Power Division, consequent upon approval of the Cabinet (Federal Government), notified the reconstitution of BoDs-LESCO on December 10, 2022 without observing the fit and proper criteria of the Public Sector Companies (Corporate Governance) Rules, 2013 and resulted in conflict of interest.
The audit noted that GoP nominated Hafiz Mian Muhammad Nouman as independent director and Chairman BoDs of LESCO and observed that Hafiz Nouman holds dual position as Vice President of a political party and Chairman BoD-LESCO which resulted in conflict of interest and violation of criteria mentioned in Rule-3(7) of Corporate Governance Rules-20 13. Moreover, as Chairman of BoD, he does not hold significant experience in dealing with Discos, energy and power sector, regulatory and statutory affairs.
The GoP nominated Faisal Ayub Khokhar as independent director of LESCO BoDs who has no experience relating to power sector. Furthermore, Faisal Khokhar is also an office-bearer of a political party as President of its Lahore-City Division chapter and has affiliation with a political party (https://www.pmlnpunjab.org/lahore-division/) which is a conflict of interest and violation of section 3(7) of Corporate Governance Rules-2013.
The GoP nominated Muhammad Ali Ayaz Saddiq as independent director of LESCO BoDs, who also is working as doctor in ophthalmology department of Mayo Hospital, Lahore and drawing salary and perquisites; and has no experience relating to power sector.
The audit report says that the evaluation of composition of Board of Directors-LESCO reveals a pattern of non-compliance with Corporate Governance Rules-2013, which stipulates that directors must meet specific criteria to qualify as ‘fit and proper’ persons.
The BoD composition displays a lack of diversity, relevant qualifications, and an alarming number of members holding political positions which contravenes the principles outlined in the Corporate Governance Rules-2013, potentially impeding effective governance and decision-making.
MoE as appointing authority of BoD-LESCO did not form BoD-LESCO in accordance with applicable criterion given in Corporate Governance Rules-2013 which showed that no scrutiny of members’ profiles was conducted.
Audit said non-adherence to provisions of Corporate Governance Rules-2013 resulted in irrational composition of Board of Directors LESCO which resulted in conflict of interest and inefficiency of BoD-LESCO.
Audit has recommended investigating the reason(s) for non-adherence to the Corporate Governance Rules 2013, which caused irregular composition of BoD, and has sought a review of the constitution of the board member under orders of the competent authority and intimated to audit accordingly.
Audit further recommends investigating the matter of violation of Corporate Governance Rules-2013 and fixing the responsibility of person(s) at fault under intimation to audit besides taking following measure: Ministry of Energy should promptly rectify the composition of the BoD to ensure compliance with the Corporate Governance Rules-2013. This involves removing members with conflicts of interest and appointing individuals with the requisite qualifications and expertise.
Audit has maintained that the appointment of Hafiz Nouman is in direct violation of the Corporate Governance Rules of 2013, especially regarding the criterion of a “fit and proper person”. His appointment has significant implications for LESCO’s business affairs and governance as the Vice President of a political party and Chairman of BoD create a significant conflict of interest that may compromise the impartiality and independence required for effective governance besides undermining the integrity of LESCO’s corporate structure, eroding principles of transparency, accountability and neutrality.
Audit has also raised objections on use of LESCO’s maintained vehicle by the Chairman BoD, inflicting financial loss of Rs 1.6 million. The issue of ‘Khuli Kehcheris’ has also been discussed by the audit, saying that it is beyond the scope of BoD oversight and against regulatory framework of the Regulator, which resulted in extra expenditure and ultimately was a burden on end-consumers.
Audit has advised Power Division to establish strong oversight mechanism to ensure the nominations for the BoDs are aligned with legal and regulatory requirements; develop and enforce a comprehensive conflict of interest policy, outlining circumstances and considerations for potential conflict of interest and procedures for disclosure.
Copyright Business Recorder, 2023
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