Home »Top Stories » Controversial payment to IPPs: PAC report rejected
A sub-committee of the Senate Standing Committee on Finance rejected the report of Public Accounts Committee (PAC) on Rs 480 billion paid to the Independent Power Producers (IPPs) on June 28, 2013 by the incumbent Finance Minister, Senator Ishaq Dar.

The sub-committee headed by Senator Mohsin Aziz and comprising Senator Saud Majeed and Senator Kamil Ali Agha which met on Thursday criticised the Central Power Purchasing Agency (CPPA) for paying Rs 480 billion in one day to the IPPs by using the word " emergency" without audit and codal formalities through special arrangement.

The sub-committee's mandate was "in-depth consideration of the payments made to clear the circular debt of power sector amounting to Rs 480 billion 2013-14". A representative of State Bank of Pakistan (SBP) was present.

However, there was no official from the Ministry of Water and Power at the meeting. However, Convenor of the Committee Mohsin Aziz said the PAC report on payment of Rs 480 billion to IPPs was not rational. Senator Kamil Ali Agha, too, criticised the PAC report.

The sub-committee members expressed astonishment at learning that the government also paid a Rs 10 billion mark-up to the IPPs without audit. Senator Kamil Ali Agha maintained that since the mark up had been piling up for the last several years the government should have waited so that it could have been verified by the Auditor General of Pakistan (AGP). PAC had settled paras of payment to IPPs.

Senator Saud Majeed noted the sub-committee's objections on the way payment was made to the IPPs by flouting prevalent rules.

The sub-committee was surprised to learn that the government paid Rs 32 billion to IPPs for idle capacity without purchasing power. Members of the committee questioned as to how a substantial amount was paid to the IPPs as idle capacity at a time when the country was facing an 18-hour load shedding in 2011 to 2013.

An Advisor to the CPPA claimed that during a 24-hour period, dispatches are prioritised keeping in view the efficiency of the plants. However, when the sub-committee members started writing in the minutes that several plants were kept shut in 2011-12 due to lower power demand in the country and asked the CPPA Advisor if he still stands by his statement, he opted to remain quiet. CEO CPPA came to his rescue and said that this was undertaken by the National Power Control Centre (NPCC) and suggested that the sub-committee members visit the offices of NPCC for a briefing. He also suggested that special audit of 30-minute power supply span of NPCC be conducted to verify the facts.

The sub-committee also expressed serious reservations on payment of Rs 2.7 million to IPPs which was deducted from the shareholders as withholding tax on dividends, saying that this too was totally unjustified. An official of Nepra explained that the government guidelines provide for withholding tax on IPP dividends as a pass-through item which implies that the amount of withholding tax is payable to IPPs and it is part of generation tariff. The sub-committee directed the representative of Nepra to provide documentary evidence to the AGP.

The representatives of AGP claimed that CPPA had not provided invoices of IPPs till the finalisation of the audit of Rs 480 billion. CEO CPPA maintained that he had provided the invoices to the audit. However, when the sub-committee insisted that the CEO should provide receipt of invoices he was silent.

Senior officials of Audit informed the sub-committee that they had requested NPCC to provide data of economic dispatch order but they have refused on the plea that a book is made every day on the data which is not possible to share with the audit.

"We have also written a letter to the NPCC to provide record on a continuous basis for audit. Both the CPPA and NPCC are reluctant to provide record to the audit," he added. The sub-committee enquired that on what basis CPPA paid Rs 480 billion to the IPPs.

He further said that factually, power sector's transmission and distribution systems are unable to carry the entire generated electricity, adding that NTDC should upgrade its system. He further stated that agreements are being done with IPPs but nothing is done on improvement of transmission system. "If transmission system is not improved, idle capacity will increase substantially in 2017. This issue has landed in the Auditor General and we are seeing it. It is yet not articulated so far otherwise I would have shared with the sub-committee," said the audit official.

Kapco, Habibullah Coastal Power, Rousch Power, Saba Power, Uch Power, Fauji Kabirwala Power, Altern Energy, TNB Liberty, Altas Power, Attock, Attock Gen Ltd, Engro Powergen, Foundation Power, Hubco Narowal, Liberty Tech, Nishat Power, Nishat Chunian, Saif Power and Saphire Power were the main IPPs which got payment against idle capacity. As per data provided by CPPA, Islamabad, the amount paid to IPPs included sales tax amounting to Rs 20.84 billion. The scrutiny of sales tax return of these IPPs has been carried out for the relevant period. An amount of Rs 14.6 billion matches with the amount of output tax declared to IPPs. For an amount of Rs 4.095 billion, the amount declared as output tax by the IPPs is Rs 6.148 billion which is even higher than the amount shown. An amount of Rs 1 billion will be declared by 6 IPPs as output tax. Rs 942.7 million has been declared as output tax showing a difference of Rs 103 million. The matter is being examined/ investigated by the FBR. An amount of Rs 450.4 million to be declared as output tax by 2 of the IPPs was not declared. The matter is being examined by the tax authorities.

The sub-committee also criticised CPPA for payment to Gencos without receiving invoices of delivered energy. CEO CPPA acknowledged that payments were made to Gencos without invoices, adding that the mechanism has changed and now payment is being made on the basis of invoices.

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