Cabinet Guidelines
ISLAMABAD: The interim government’s recent deviation from a federal cabinet guidelines has triggered concerns, as it failed to recover approximately Rs95 billion from publicly-owned power sector companies. Instead, it prematurely released Rs131 billion without deducting its receivables, resulting in a notable surge in the budget deficit for the fiscal year’s first half.
The breach of the cabinet’s decision by the Ministries of Finance and Energy not only deepens the budget deficit but also missed a crucial opportunity to alleviate it by recovering loans and cash dividends. This lapse raises questions about the government’s commitment to fiscal discipline and adherence to directives, impacting overall financial stability.
Sources reveal that both ministries neglected to recover cash loans and dividends while settling the Rs131 billion circular debt of government-owned power sector firms. The Economic Coordination Committee (ECC) of the Cabinet had directed the government to prioritize the recovery of government loans during circular debt settlement, a directive ratified by the federal cabinet. Unfortunately, both ministries disregarded this crucial directive.
The ECC’s approval of a total payment of Rs264 billion to four government-owned power generation firms on December 19 aimed for a two-tranche release. However, the initial Rs131 billion tranche was released without recovering the specified dues, contradicting the ECC’s explicit directive.
The breach of the ECC’s decision raises questions about the government’s commitment to financial discipline and adherence to directives. The failure to recover the specified amounts impacts the overall fiscal health and underscores the need for transparent and accountable financial management in public sector entities.
Despite efforts to address circular debt and commitments to the International Monetary Fund (IMF), the power sector’s mismanagement remains evident. The recently released comprehensive report by the Ministry of Finance highlights the challenges faced by these entities, revealing net losses and financial strains.
The report exposes the dire state of several power sector companies, including losses incurred by major power plants and negative returns on equity and assets. The presence of bureaucrats on the boards of these companies is identified as a contributing factor, emphasizing the need for effective governance to protect the government’s interests.
While the government grapples with circular debt challenges and commits to reducing it, the prevailing approach, either through price increases or budgetary allocations, raises concerns about sustainability and long-term solutions. The continued increase in circular debt poses potential repercussions on petrol prices and underscores the urgency of comprehensive reforms in the power sector. As the government navigates these challenges, the focus on transparent financial practices and governance reforms becomes paramount for ensuring a resilient and sustainable power sector.
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