ISLAMABAD: The Debt Management Office of Finance Division has proposed Power Division to revisit draft agreement on Tariff Differential Subsidy (TDS) with K-Electric with respect to delayed payment keeping in view current economic environment, well informed sources told Business Recorder.
Commenting on draft TDS pact, the Debt Management Office, in a letter to Finance Division (Corporate Wing), stated that draft TDS agreement with K-Electric has been reviewed by it in view of possible financial implications on Government of Pakistan. The Debt Management Office has offered following comments: (i) the delayed payment rate is defined as KIBOR + 3.5 per annum, compounded semi-annually. The semi-annual compounding may be removed; (ii) the current 6-month KIBOR is hovering around 21 per cent with an expectation to remain at same levels in short-term.
Hence a delayed payment rate in the current scenario will result in around 24.5 per cent per annum, chargeable on actual number of days delayed. Therefore, the timeline committed for TDS payments are required to be followed effectively to avoid financial penalty placed in the current economic environment, the delayed payment not may, therefore, be revisited; and (iii) there is a typo mistake under the heading releases of TDS claims 10 of 2.5 where “eighteen” is written instead of “thirty”.
The Debt Management Office further proposed that the contents of the document from legal and implementing timelines point of view be ensured by relevant departments.
Earlier, Finance Division (Corporate Finance), had refused to become part of agreement with K-Electric on TDS, saying Power Division should sign the pact on behalf of the government of Pakistan (GoP), as “Electricity” is its domain under Rules of Business, 1973, well informed sources in Finance Division told Business Recorder.
According to Finance Division, as a matter of principle power subsidies should be restricted to the extent of the fiscal resources available to finance them. Restricting the subsidies to budgeted amounts would also help address the issue of circular debt.
Additional claims in the form of SG/ TSG during the currency of the year need to be avoided. These principles should be conveyed to all Discos. Power Division may get timely approval of the relevant forums for adjustment of tariffs accordingly.
As regards the proposed obligations of the GoP in the event of delay in process of TDS claims and charge of interest @ KIBOR+3.5% per annum, Finance Ministry maintains that it would have no objection to the Late Payment Surcharge (LPS), to the extent of budgeted subsidy. The proposed rate of interest appears to be on the higher side which may be adjusted downwards.
Finance Division further stated that KE should be required to provide at the end of each fiscal year relevant record of the subsidy (claims+ releases) along with other required documents for “subsidy audit” to Auditor General of Pakistan for post audit. Terms of Reference (ToRs) of audit should be decided separately. A penalty clause may be considered in the event of non-provision of record.
Finance Division further proposed that Power Division may sign the TDS Agreement on behalf of the GoP as “Electricity” is the domain of Power Division under the Rules of Business, 1973 and all issues of generation, transmission and distribution including provision of subsidy to electricity consumers is the mandate of Power Division.
Finance Division may not be added as party to the agreement as the proposed agreement will set a precedent where other entities would also wish to involve Finance Division in service level agreements between them and their service providers/ vendors.
Copyright Business Recorder, 2023