Area 14/8

The auditor general of Pakistan (AGP) has found embezzlement, misappropriation and irregularities of around Rs980 billion in the accounts of Water and Power Development Authority (Wapda) and other power companies working under the Ministry of Water and Power in the audit year 2013-14 and has asked the president to order investigations into specific cases.

The amount is equal to nearly one-fourth of the Rs4 trillion federal budget for fiscal year 2015-16 and can explain why the government has to inject huge subsidies out of taxpayers’ money every year to clear the circular debt that keep emerging again and again. Over the past five years, the federal government is estimated to have injected more than Rs2 trillion into the power sector, besides increasing consumer tariff by about 200 per cent.

On top of that, the AGP has also made observations over Rs4.2 trillion in an unsettled audit backlog from the past few years.

The audit pertained to Rs414 billion of expenditure and Rs898 billion of revenue for fiscal year 2012-13.

In its report to the president of Pakistan — as mandated under Article 171 of the Constitution — the AGP has put together seven broad categories of findings from an audit of the accounts of Wapda, four generation companies (Gencos), 10 distribution companies (Discos) and the National Transmission and Despatch Company (NTDC).

Wapda’s Directorate General of Audit — a specialised wing empowered to look after power sector accounts — said it had ignored the instances of misappropriation, fraud and other irregularities amounting to less than Rs1 million. In FY2012-13, the directorate said, an audit found 184 cases of irregular expenditures or unjustified payments and rule violations amounting to Rs368.65 billion.

Another 88 cases, worth Rs572.63 billion, pertained to non-recoveries and overpayments; 18 cases to accidents and negligence that cost around Rs19.5 billion; Rs5.8 billion was linked to cases where there were weaknesses in internal control systems; and transactions of around Rs11.8 billion were called into question over non-production of record. Another nine cases, worth around Rs350 million, were related to embezzlement of public money through theft and misuse of funds.

However, at the instance of audit, only Rs31.9 billion could be recovered and the AGP pointed out that it was beyond their capacity to carry out a “100 per cent” audit of these entities.

But the AGP pointed out that the internal control mechanisms in Wapda and its corporate entities did carry out complete audits, which also included consumer service offices, and also carried out physical examinations.

The AGP said that the recurrence of frequent irregularities “cast a shadow of doubt on the effectiveness of this internal control system”. The internal controls, it said, were deteriorating gradually as there had been an increase in cases of unauthorised extension of load, non-implementation of equipment removal orders, theft of material and electricity and violation of procurement rules as well as the Nepra Act.

The audit revealed that power distribution companies could not collect Rs401 billion from various defaulters in FY2012-13, while the procurement of material and consultancy services, provision of PC-1s and contracts involved the violation of procurement rules

“There was poor monitoring of revenue collection, embezzlement of funds, misappropriation and theft of material, misuse of public funds, incorrect billing, non-implementation of commercial procedure and non-adherence to provisions of power policy,” the AGP said.

Highlighting some of the major irregularities, the AGP said Rs139.3 billion worth of energy charges could not be recovered from consumers because the standard operating procedures (SOPs) for removal of meters, equipment and connections of defaulting consumers were not implemented in the case of 734,465 consumers across all categories. Simply put, even though meters of defaulting consumers were removed, they continued to get electricity.

Another Rs247 billion was not recovered from dead defaulters (both in government and private sector) and efforts were not made to accelerate recovery from defaulters. “Owing to increasing trend of receivables, Pepco was facing financial difficulties in discharging its obligations towards power sector companies and independent power producers.”

It said that distribution companies also suffered Rs36 billion losses on account of abnormal line losses beyond Nepra’s targets, while another Rs31 billion was not recovered from 555,149 running defaulters. It said around Rs12 billion was lost due to inefficient power production at Guddu Power Station.

The audit also pointed out Rs74 billion losses due to abnormal delay in the initiation of a major combined cycle power plant at Chichoki Malyan, including Rs16 billion due to cost overruns and Rs51 billion due to the blockage of generation revenue. It said that another Rs43 billion had been lost in 2012-13 alone over delays in the Nandipur project. Another Rs15 billion was also not recovered from IPPs and contractors on account of liquidity damages.

The auditors recommended that the government pursue Wapda to complete hydropower projects under their given timelines and that the Ministry of Water and Power should improve internal controls within all allied companies to stop illegal extension of load and theft of material and electricity and improve matters relating to investigations, fixing of responsibility and transparency.