The report adds, that the law requires Controller General Accounts to authorise all payments and withdrawals from the consolidated funds and public accounts of federal and provincial governments against approved budgetary provisions after pre-audited checks prescribed by the AGP from time to time. As such, the 342 billion rupees paid by the Finance Division through the State Bank of Pakistan as cash settlement was an "irregular payment" for the settlement of circular debt as it was undertaken without a pre-audit and must be credited to Pakistan Electric Power Company (Pepco). The finance minister's critics would no doubt recall his boastful statements at the time as he claimed that he had eliminated the debt once and for all on the say so of, less than one month in office, Prime Minister Nawaz Sharif - a feat that he claimed had not been achieved by the Zardari-led government.
In this context, it is relevant to acknowledge that AGP's special audit report also highlighted irregularities during the tenure of the PPP-led coalition government. These irregularities include: (i) 32 billion rupee late payment charges; (ii) 25.1 billion rupee settlement by the Finance Division against receivables of National Transmission and Dispatch Company and Gencos; (iii) non-recovery of 23 billion rupees from 11 IPPs as liquidity damages for various transgressions, including suboptimal operations by Pepco leading to the conclusion that an unfair advantage was given to the IPPs.
The report made headlines not because its findings have come as a surprise as this data was being reported by the media but because it was the outcome of a special audit conducted by the AGP which is headed reportedly by a PML-N loyalist. What is extremely disturbing about the report's findings is, that it simply reinforces the perception that our finance ministers, past and present, disregard rules that are expressly meant as checks and balances on the use of executive power. This is necessary to ensure that rules are followed and forestall the possibility of any 'irregular' decision that would have repercussions on not only the budget but also on the competence and integrity of the relevant minister.
The circular debt has been identified as one of the major reasons for the power sector crisis and both the PPP-led coalition and the PML-N governments committed to the International Monetary Fund - the PPP under the Stand-By Arrangement and the PML-N under the Extended Fund Facility - to eliminate it. Unfortunately, however, the two failed to eliminate even the flow of the debt and instead relied on raising tariffs with the objective of achieving full cost recovery rather than focus on improving governance through reducing receivables, transmission and distribution losses. The PML-N government is now focused on improving the generation capacity; however, with transmission systems unable to withstand the existing capacity, which remain grossly under-utilised, this focus is baffling.
The advantage to the PML-N government, as opposed to its predecessor, is that the international price of oil declined dramatically during the last two years, unlike during the PPP's tenure. This has resulted in savings that have been used to create fiscal space (though some reduction in tariff has been passed on) through the levy of heavier taxes on petroleum and products. Higher taxes have disabled our productive sector to compete internationally and the result is: declining exports.
It is unfortunate that the PML-N government is being held to task for lack of transparency on a rising number of critical subjects, including the LNG import contract and the China-Pakistan Economic Corridor. One can only hope that the government desists from taking any future actions that are patently irregular and proceeds in a more transparent manner.