Auditor General of Pakistan (AGP) claimed that Ministry of Water and Power has kept unnecessary cash and equivalent and not utilised it to settle short-term borrowings in order to minimise its financial cost. According to documents available with Business Recorder the AGP said that cash balance as on June 30, 2010 was Rs 2.704 billion as compared to Rs 772.191 million on June 30, 2009.
"This showed that the Wing has kept unnecessary cash and equivalents and not utilised to settle short-term borrowings to minimise its financial cost," audit notes. The management needs to justify unnecessary retention of cash, the AGP advises.
The Audit said that the equity of the Power Wing (Hydro Electric) consists of share capital and capital reserve. The Government of Pakistan invested Rs 9.5 billion, which included in share capital of the Wing. Power Wing (Hydro Electric) showed Rs 358.23 billion (Rs 352.93 billion as on June 30, 2009) under the head "Capital reserve" as on June 30, 2010. This includes Rs 173. 928 billion reserved for construction of new/ongoing hydel power projects through annual development programme and remaining Rs 184.298 billion pertain to reserve for GoP investment in corporate entities.
The audit said that this reserve would be off set against Wapda investment in Deposit for shares in corporate entities. The equity of Wing as on June 30, 2008 showed Rs 14.847 billion and Rs 139.78 billion under the head revaluation surplus and investment by GoP. In subsequent year, both these heads were abolished and total amount included under the head capital reserve. Audit maintained that revaluation needed to be shown separately in the balance sheet of the Wing after capital and reserve.
Abolition of head "Revaluation Surplus" without solid reason needs justification. Similarly, capital reserves and revenue reserves are required to be shown separately. Audit suggested to show capital and revenue reserve separately in the financial statements The audit said that current ratio of the Wing for the financial year 2009-10 was 1.83 times (1.25 times: 2008-09).
Liquidity ratio improved due to increase in current assets by Rs 61.1 billion over current liabilities. The audit said analysis showed that current assets increased due to increase in trade debts and cash and bank balances by Rs 6.660 billion and Rs 1.931 billion respectively. The wing was advised to improve its recovery position and avoid retention of such heavy cash balances.
The Audit further said that long-term loans increased by 14.86 percent ie from Rs 49.196 billion to Rs 56.508 billion. During the year the Wing obtained direct foreign loan amounting to Rs 0.532 billion (equivalent to 123 million dollars) which represents supplier credit for Jinnah Hydro Power project payable in 20 instalments through redemption of promissory note issued by the State Bank of Pakistan under sovereign guarantee.
Audit argued that had this project and other similar hydro projects started much earlier then the loan could have been much less and at lower rates. Further Power Wing (Hydro Electric) Wing obtained cash development loan of Rs 1.3 billion at the rate of 13.17 percent per annum.
Repayment span of this loan falls between 2010-11 to 2034-35. Further, running finance facility amounting to Rs 38.753 billion have been transferred to Power Holding Company while running finance facility from Standard Chartered Bank amounting to Rs 6.37 billion will be transferred after getting GoP guarantee. Moreover, Wing raised a bridge finance facility of Rs 2.038 billion to pay the short-term foreign currency borrowing of 25 million dollars, Audit argues that Wing should utilise its idle funds/heavy cash balance to pay off short-term liabilities. The Wing should create redemption account for repayment of long-term loans out of its profit.
The Audit said that Power Wing (Hydro Electric) generated a sum of Rs 8 billion through Ijarah financing, by entering into sale and leaseback arrangement resulting into finance lease of Mangla Dam Power generation equipment. The amount was repayable in one instalment on expiry of lease ie October 22, 2011. Wing did not create any reserve amount for repayment of Rs 8 billion which would create financial constraints in the coming years.
The Audit also said that in recent past, it was discovered that a certificate of first Sukuk Bond valued at Rs 180 million was fraudulently transferred to a ghost company. This fact was highlighted in a special study report on Wapda Sukuk Bond. The Wing has not disclosed it in the financial statements. Audit suggested that matter should be disclosed in financial statement under contingent liabilities.
The Audit said that short-term liabilities increased significantly by Rs 12.973 billion (38%) ie from Rs 34.263 billion to Rs 47.237 billion. Major amount pertains to Debt Service Liability (payable to Government of Pakistan) which was increased from Rs 32.112 billion to Rs 43.545 billion.
It was pointed out that Power Wing (Hydro Electric) liability towards long-term loan along with mark up has been transferred to debt service liability towards Government of Pakistan. The Wing should make efforts to clear short-term liabilities.
Trade Debt which in fact was receivable from NTDC/CPPA, increased by Rs 6.660 billion (6.39 percent) over the previous year. The Wing has created a provision for doubtful debts amounting to Rs 5.873 billion against interest claim disputed by NTDC/CPPA for non-effectiveness of PPA provisions for levy of late payment surcharge on the payment default. The detailed justification and basis for creation of such a huge provision during the current financial year needed to be given because no such provision was made during the previous years.
The debtors' turnover period was 1,391 days (more than three years) which showed that the Power Wing was facing problem in realisation from debtors. It was suggested to carry out appropriate measures for recovery from its debtors otherwise, the Wing would have to rely on external financing and benefits of generating cheapest electricity would be wiped out. Age analysis of debtors showed that 58 percent of receivable was due for more than two years and 19 percent was due for 1 year. The management should take appropriate measures to melt down these receivables into most liquid form.
The Audit also said that long-term liquidity under the Debt, Gearing and Leverage Ratios reflected satisfactory position. The debt/equity ratio was 17.03 percent, which showed that the Power Wing (Hydro Electric) can afford to borrow further loans to finance and improve its operations and expand the business. But on the other hand, recovery from trade debts was very slow which might uncover the potential threat of repaying debts on maturity. The Wing was advised to make the effort to shorten the operating cycle by improving its trade debts recovery.
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