The Cabinet has imposed restrictions on the Finance Ministry on blind approvals of expenditures for the cash hungry Pakistan Electric Power Company (Pepco), sources told Business Recorder. Sources said that Pepco was made dysfunctional only rhetorically in an attempt to sideline Managing Director Tahir Basharat Cheema.
"The Cabinet has approved that Prime Minister may approve the expenditure proposals in inevitable cases, subject to subsequent concurrence of the Cabinet, for the energy sector," they said. These directions were issued by the Cabinet on December 15, 2010 during discussion on a request for release of Rs 30 billion temporary interest-free loan to Pepco, which is facing serious cash flow problems, besides inter-circular debt, estimated at about Rs 350 billion.
The Ministry of Water and Power, under the guidance of Deputy Chairman of Planning Commission Dr Nadeeem-ul-Haq, is in the process of finalising power sector reforms package to empower distribution companies (discos) and National Transmission and Dispatch Company (NTDC), and outlining measurers for ensuring efficiency in fuel use, transparent financial management, and improved governance.
Shahid Sattar, Energy Advisor to the Ministry of Water and Power, reportedly close to Deputy Chairman of Planning Commission, is looking after the so-called power sector reforms under the patronage of the World Bank, the Asian Development Bank and the International Monetary Fund (IMF). According to the summary of the Finance Ministry, tabled before the Cabinet on December 15, 2010, the Ministry of Water and Power had requested that, pending finalisation of the reforms package, the government may extend a temporary loan of Rs 30 billion to Pepco so that some of its pressing payments to power and fuel supplier companies can ensure uninterrupted power supply in the country.
The Ministry of Finance, after examining the proposal, agreed to extend an interest-free loan to Pepco for two years and, accordingly, approved a supplementary grant of Rs 30 billion under demand No 130 (other loans and advances by federal government) as existing allocation in the demand (Rs 10.061 billion) was insufficient to meet this requirement.
However, due to urgency in the matter prior approval of the Cabinet, as required under Finance Division's D.O. letter No 7(2) Exp-IV/2010, July 22, 2010 could not be obtained . The amount of Rs 30 billion was released to Pepco on November 8, 2010 as interest-free grant for two years. The prime focus of the reform package would be settlement of the dues on account of unpaid tariff differential of the previous year.
Wapda's loans and debt outstanding, as on October 31, 2010, were 87.346,668, of which Rs 10.004,624 are foreign direct loans, Rs 36.771,777 are foreign relent loans, Rs 16 billion federal government loans, Rs 6.5 billion short term loans, Rs 2 billion internal loans and Rs 16 billion Skuk-I&II. Pakistan State Oil (PSO), which is the key supplier of furnace oil to Pepco, and independent power producers (IPPs) are continuously persuading Pepco for timely payment of their due payments. However, Pepco is unable to pay the outstanding amounts to fuel supplier and IPPs. However, the Cabinet allowed the Finance Ministry to revise the summary, and submit it in the next meeting of the Cabinet, after the sponsoring Ministry requested a review.