Ever wondered how much the governance and financial mismanagement in the power sector costs the national exchequer? A staggering Rs1.3 trillion! The number was released by the Auditor General of Pakistan in a report presented in Parliament last month. Mind you the audit was not even done in its entirety with only 191 of 263 formations of the Water and Power Development Authority (WAPDA) and power-sector companies being scrutinized.
The amount is up some Rs320 billion from FY13 when the AGP found embezzlement and irregularities of Rs980 billion in WAPDA accounts and various power companies under the domain of the Ministry of Water and Power (MoWP), Clearly then, it should not be surprising that circular debt has repeatedly reared its ugly head over the years.
A closer look at the AGP report gives some insights. The audit found irregularities worth Rs957 billion pertaining to poor financial management, Rs103 billion on account of weak internal controls and Rs259 billion of flawed asset management. All in all these irregularities cost the economy around 2.3 percent of its GDP last year!
The report highlighted cost overruns due to poor management as a significant issue. This once again calls into question the capacity of WAPDA to build and maintain mega hydropower projects. A glaring example of the incompetence has been apparent in projects such as Neelum-Jheelum. Ultimately a quick fix is available in the form of illogical and baseless surcharges that are frequently challenged in the courts. However, in the end the consumer gets charged for the government’s incompetence and negligence.
NEPRA also noted in its State of Industry Report 2016 “unless quantum improvement is achieved, through professional handling in the performance and governance of these companies, drag would bring down the sector and defeat the overall objectives of the government to lower the costs of energy mix and to provide least expensive electricity to common man. “
Well that is an ideal objective at the very least given that the power sector is not even operating on breakeven terms. The government’s actions such as the one to cripple the regulator’s role while at the same time increasing direct control of the power sector by the ministry leaves little hope for improvement.
This column has said it before and will reiterate it once again. All the years of crippling energy shortages point out that it really does not matter how many mega-watts are added to the system, or even if the transmission network is overhauled in its entirety. The crux of the matter is that unless governance and proper financial accountability of the power sector is undertaken, circular debt will never disappear. Neither will there be any sustainable economic and financial viability of the power sector in the long run.