Restructuring of Pepco, PSM, Railways: finance presentation to Cabinet unlikely today

The Finance Ministry is unlikely to give a detailed presentation to the Cabinet on Wednesday (today) on 'restructuring' of three public sector entities which require bail-out packages of billions of rupees annually, sources told this correspondent.
The Cabinet in its meeting on December 29 had directed the Finance Ministry to give presentation to the Cabinet in the next meeting on restructuring of Pakistan Electric Power Company (Pepco), Pakistan Railways and Pakistan Steel Mills (PSM).
"These three entities take away about Rs 100 billion annually due to poor performance, corruption and nepotism," commented an analyst. The Ministry of Water and Power and Planning Commission jointly initiated reforms in the power sector but did nothing in practical terms, except sidelining the Pepco Managing Director, Tahir Basharat Cheema, who was reportedly resisting illegal demands of high-ups.
"Since the ouster of Cheema, outstanding arrears have increased by Rs 63 billion in three months; line losses have also increased and, with the dissolution of the Board of Directors (BoDs) of discos, decisions have come in the hands of incumbent MD," said sources close to Minister for Water and Power.
According to the Finance Ministry, receivables from private sector consumers have jumped from Rs 78 billion to Rs 103 billion and to Rs 122 billion during the period from June 30, 2009 to June 30, 2010 to October 31, 2010 respectively. Finance Ministry has also urged the Ministry of Water & Power to direct Pepco to improve its efficiency as due to its poor performance neither the line losses have been lowered nor situation relating to receivable/recoverable from private as well as public sector consumers has improved.
Power supply situation has also worsened due to mismanagement by the incumbent brass, low gas pressure and non-availability of sufficient required furnace oil. Load shedding in cities is about four hours, but in villages load shedding is not less than 10 hours.
On Tuesday, the management of the three public sector entities (PSEs) gave the Planning Commission's guided presentations to the Cabinet Committee on Restructuring, which was rejected by the committee, said an insider in the Finance Ministry. However, when contacted, Secretary Finance, Dr Waqar Masood told this scribe that the presentations were not final.
According to the minutes of the Cabinet meeting of December 29, 2010, the Cabinet also took note of the delay in the implementation of its decision pertaining to the restructuring of the major PSEs and advised the Cabinet Committee on Restructuring of the identified PSEs to present its report on Pepco, Pakistan Railways and Pakistan Steel Mills in the next Cabinet meeting.
Sources said that the Finance Ministry is also reluctant to extend Rs 22 billion to the financially constrained PSM and Pakistan Railways despite clear instructions of the Cabinet. However, officials of both Ministries told this scribe that they have not been given the required funds.
Finance Ministry has claimed that power sector reforms, initiated by the Ministry of Water and Power under the guidance of Deputy Chairman of Planning Commission and international financial institutions, are not being shared with it. "Power sector reforms have never been shared with the Ministry of Finance, in writing or through official channels, nor the Ministry (CF Wing) is aware of such a commitment at any level," sources quoted Shabbir Ahmed, Joint Secretary (Corporate Finance), as saying in a letter to the Deputy Chairman of Planning Commission, Dr Nadeem-ul-Haq.
Replying to a letter written by the Ministry of Water and Power's Energy Advisor, Shahid Sattar, who, according to Ministry's own officials, is not known as a power sector expert, the Finance Ministry stated that the claim on account of arrears of tariff differential subsidy is not based on facts.
According to Finance Ministry, the government picked up all arrears on account of tariff differential for the period 2004-05 to 2008-09 by taking on the liabilities of Rs 216 billion. Additional amount of Rs 85 billion was also arranged in September, 2009. As of June 30, 2006, such unpaid claims were Rs 39 billion.
For the year 2009-10, Pepco's projected revenue gap was Rs 110 billion and in a meeting held in May and then on 14-15 July, 2009 when the delegations of ADB and World Bank were also present, a consensus plan to bridge the gap was agreed by all including M/oW&P and Pepco. The plan was as follows: (i) Pepco to face revenue gap of Rs 110 billion in the year 2009-10 - the figure for such gap was changed to Rs 132 million in a meeting held on February 27, 2010; (ii) the government will provide cash subsidy of Rs 55 billion; (iii) tariff will be increased to create further resources of Rs 55 billion; and (iv) there will be no tariff differential subsidy during 2010-11.
It was agreed that tariff will be increased by 6+12+6 in three quarters on October 1, January 1 and April 1, 2010. Sources said that the Ministry of Finance not only honoured the agreed commitment but it also released Rs 38 billion over and above the commitment during the year 2009-10. Moreover, despite the commitment with donors that no tariff subsidy would be provided during 2010-11, the Ministry of Finance allocated an amount of Rs 30 billion against which M/o Water & Power released an amount of Rs 32 billion as tariff differential.