AGP urged to carry out pre-audit of IPPs' invoices

Power Division has requested Auditor General of Pakistan to carry out pre-audit of IPPs' invoices on an urgent basis aimed at paying multi-billion rupee liabilities of IPPs as early as possible, well-informed sources told Business Recorder. The Economic Coordination Committee (ECC) of the Cabinet has approved debt settlement plan of Power Division, according to which the Power Division will settle Rs 514 billion liabilities of power sector for smooth supply of electricity till September 2018.
Power Division, in its letter to Auditor General of Pakistan, has cited the ECC decision of March 15, 2018 for settlement of outstanding liabilities of power sector towards various sectoral entities and IPPs from commercial borrowing through GoP support under various heads of subsidies. The GoP support revenue stream as per procedure in vogue is through Ministry of Finance, FA Office, AGPR, SBP in the form of pre-audited cheques.
According to Power Division, the commercial borrowing will be routed from the sponsoring banks through PHPL and ultimately to the CPPA-G which will be making payments from all those receipts against pending invoices of sectoral entities. CPPA-G, in its letter of March 20, 2018 has requested for audit of outstanding invoices of IPPs till December 31, 2017. CPPA-G has already requested Director General Wapda for pre-audit of invoices.
The sources said a meeting has already been held between the Additional Auditor General Syed Karamat Hussain Bokhari and Additional Secretary Power Division Waseem Mukhtar in this regard. Official documents reveal that Power Division revealed that the power sector performance during the FY 2016-17 was better than during the last 10 years with marked improvement in recovery of revenue, and a reduction in losses. Despite improvements in the sector performance, the out-standing liabilities of power sector towards sectoral entities, typically known as circular debt, have increased.
Circular debt was at Rs 514 billion at the end of December 2017. A number of issues contributed towards this build-up: less than regulatory benchmarked performance (both losses and recovery), non-realization of subsidies, delayed determinations of tariff for end consumer (court stays, quarterly adjustments), non-payment by provincial governments, etc. Moreover, higher energy sales due to a significant increase in generation base have also contributed towards further buildup of circular debt due to aforementioned reasons. Under Government policies, subsidies were given to various categories of consumers. Out of these subsidies, more than Rs 30 billion was cross-subsidized within the tariff regime and another Rs 70 billion was collected as surcharge to reduce the burden on the exchequer. Non-cash settlements of subsidies under various heads to clear liabilities of GoP were made but it did not serve the purpose of payments to the service provider entities ie PSO, IPPs, NTDC, WAPDA, gas companies, etc.
The Power Division further stated that one of the major factors contributing towards the build-up of the circular debt during the last financial year was the quarterly adjustments not determined by the Regulator. The determination was carried out but it contributed more than Rs 70 billion to the building-up of circular debt.
The sources said financial position of the power sector has become critical in the past few months after achieving some stability in the past two years. The matter was discussed at high level meetings at Prime Minister's Office and it was proposed that an immediate solution for easing out the liquidity issue of the power sector be worked out. Ministry of Energy (Power Division) in consultation with Ministry of Finance has finalized the following proposals to address liquidity issue of the power sector: (i) raising of Rs 80 billion through Commercial loan through Power Holding Private Limited; (ii) payment of Rs 14 billion against AJ&K subsidies; (iii) payment on account of FATA GST amounting to Rs 14 billion; (iv) budgetary support from Government of Pakistan; (v) raising of 50 billion through commercial financing against DISCOS balance sheets; and (vi) issuance of TFC to IPPs of appropriate value.
The Power Division further proposed that the settlement would primarily be done to settle Energy Purchase Price (EPP) overdue payments in total payables, with the exception of WAPDA and nuclear power plants where Capacity Purchase Price (CPP) would be handled as their energy purchase price component out of the total Power Purchase Price (PPP) was very low. Any payment would be preceded by and would ensure adherence to prescribed procedure of payments in vogue including reconciliation and pre-audit.
During ensuing discussion it was agreed to settle power sector payables so that government-owned companies including PSO, SSGPL, SNGPL, Gencos, DISCOs and nuclear power plants may continue to operate normally. The government will also settle outstanding dues of IPPs after reconciliation and pre-audit in the prescribed manner to ensure transparency.
After a detailed discussion, the ECC approved Power Divisions' proposal with the following modifications: (i) para 5(iii) of the summary "settlement", rather than "payment", on account of FATA GST amounting to Rs 14 billion; and (ii) para 6 of the summary- the settlement will primarily be done to settle overdue payments under Energy Purchase Price (EPP) and Capacity Purchase Price (CPP). Any payment will be preceded by and will ensure adherence to the prescribed procedure of payments in vogue, including reconciliation and pre-audit.