AUDIT REPORT ON THE ACCOUNTS OF WATER … AR 2003-2004 with...WATER AND POWER DEVELOPMENT AUTHORITY...

AUDIT REPORT

ON

THE ACCOUNTS OF

WATER AND POWER

DEVELOPMENT AUTHORITY

AUDIT YEAR 2003-04

AUDITOR-GENERAL OF PAKISTAN

CONTENTS

Page

No.

Acronyms ii

Preface iii

Executive Summary

Recommendations

1-2

3

Section-I

Audit Report

1. Water Wing

4-13

2. Power Wing 14-15

3. Residual Power Wing (RPW) 16-21

4. Jamshoro Power Generation Company (GENCO-I) 22-23

5. Central Power Generation Company (GENCO-II) 24-25

6. Northern Power Generation Company (GENCO-III) 26-27

7. Lakhra Power Generation Company (GENCO-IV) 28-29

8. National Transmission and Despatch Company (NTDC) 30-36

9. Faisalabad Electric Supply Company (FESCO) 37-38

10. Gujranwala Electric Power Company (GEPCO) 39-41

11. Hyderabad Electric Supply Company (HESCO) 42-46

12. Islamabad Electric Supply Company (IESCO) 47-51

13. Lahore Electric Supply Company (LESCO) 52-62

14. Multan Electric Power Company (MEPCO) 63-68

15. Peshawar Electric Supply Company (PESCO) 69-75

16. Quetta Electric Supply Company (QESCO) 76-81

Section-II

Comments on Internal Controls

82-84

ACRONYMS

BOQ Bill of Quantity

CCC Central Contract Cell

CRE Consultant Resident Engineer

DRB Disputes Review Board

DISCOs Distribution Companies

EIB European Investment Bank

EOT Extension of time

ERP Environment and Resettlement Panel

FC Foreign Currency

FAS Fuel Adjustment Surcharge

FEC Foreign Exchange Component

GBC Ghazi Barotha Contractor

GBHP Ghazi Barotha Hydro Power Project

GBTI Ghazi Barotha Taraqyati Idara

GENCOs Generation Companies

GWh Giga watt per hour

IBRD International Bank for Reconstruction & Development

IDB Islamic Development Bank

IPC Interim Payment Certificate

JBIC Japanese Bank for International Cooperation

KFW Kreditanstalt Fuer Wiederaufbau

KWh Kilo Watt per hour

LC Local Currency

LD Liquidated Damages

LAC Land Acquisition Collector

LC Letter of Credit

LIBOR London Inter Bank Offered Rate

M&E Monitoring & Evaluation

M&S Monitoring & Surveillance

MW Mega Watt

ME Contracts Mechanical & Electrical Contracts

MOU Memorandum of Understanding

NES PAK National Engineering Services of Pakistan

NGO Non-Governmental Organization

OECF Overseas Economic Cooperation Fund

PC-I Planning Commission Proforma-I

PIDA Punjab Irrigation & Drainage Authority

PHC Pakistan Hydro Consultants

POE Panel of Experts

RD Reduced Distance

RAP Resettlement Action Plan

SP Special Provision

VO Variation Order

SECTION-I

AUDIT REPORT

PREFACE

The audit of WAPDA and its corporate entities was conducted in pursuance of

Article 169 of the Constitution of Islamic Republic of Pakistan read with Section 8 and

other relevant provisions of the Auditor General’s (Functions, Powers and Terms and

Conditions of Service) Ordinance, 2001.

This report is based on the overview of financial statements of corporate entities

of WAPDA for the year 2003-04 and compliance with authority audit of the accounts of

WAPDA and its corporate entities for the years 2001-02 and 2002-03. The audit was

conducted by Directorate General of Audit WAPDA during 2003-04, on test check basis

of corporate entities and concurrent audit of the projects, with a view to report significant

findings to the stakeholders.

The findings indicate the need for adherence to the regulatory framework and

instituting and strengthening of the internal control framework especially to ensure

minimization of line losses, better management of receivables and timely completion of

projects. These measures are necessary to avoid recurrence of similar type of failures and

mis-management as well as violations and irregularities year after year.

Audit observations included in the report were discussed with the concerned

Principal Accounting Officer in the Departmental Accounts Committee meeting and have

been finalized in the light of written response and discussions.

The report is submitted to the President of Pakistan in pursuance of Article 171 of

the Constitution of the Islamic Republic of Pakistan.

Islamabad MUHAMMAD YUNIS KHAN

Dated: Auditor-General of Pakistan

EXECUTIVE SUMMARY

Directorate General of Audit WAPDA (Water and Power Development Authority)

carried out the audit of the accounts of WAPDA Water Wing, Residual Power Wing and

its corporate entities during the year 2003-04. WAPDA’s Power Wing underwent a major

restructuring in 1998 and since then fourteen corporate companies have been created and

registered under Companies Ordinance, 1984.

1. According to WAPDA the overall line losses of Power Wing decreased to 25.5%

during the year 2003-04 from 26.0% in 2002-03. These are still higher than

acceptable standards. Six distribution companies out of eight could not achieve the

target to control distribution losses fixed for the year 2003-04. Particularly, line losses

of Hyderabad Electric Supply Company (35.6%) and Peshawar Electric Supply

Company (31.4%) were very high against the assigned target of 30% and 27.6%

respectively. Line loss is one of the main reasons for WAPDA’s financial problems.

The financial impact of 1% line losses of WAPDA is more than Rs.2,500 million

per annum. [Para 2.2, 11.1, 15.1]

2. WAPDA’s trade debts increased by 18%, from Rs.58,906 million as on 30th June,

2003 to Rs.69,613 million as on 30th June, 2004, on account of failure of recovery

system. This debt is adversely impacting the cash flow. [Para 3.2]

3. Provision for doubtful trade debts made by all distribution companies, during the

year 2003-04, increased from previous year’s Rs.12,603 million

(19.8% of the trade debts) to Rs.21,914 million (31.56%). An increase of

Rs.9,311 million, during a single year (i.e. 4.7% of the sales), could not be

justified by the management. [Para 3.3]

4. Payables decreased from Rs.26,418 million as on 30th June, 2003 to

Rs.12,756 million at the end of the financial year 2003-04, mainly due to conversion

of Government of Pakistan debt servicing liability into equity. [Para 3.4]

5. All the distribution companies, except Faisalabad Electric Supply Company

and Lahore Electric Supply Company, were running in losses. [Para 2.1]

6. Physical progress of works concerning eight Water Resource Development

Projects being carried out by the Water Wing under Vision-2025 at an estimated

cost of Rs.164,856 million was lagging behind the schedule, ranging from 1.5% to

40.8%. [Para 1.1]

7. This report highlights five cases of poor contract management involving payment

of claims made to the contractor without due process, delay in projects

completion and over run expenditure (Rs.3,669 million).

[Para 1.2, 1.6, 1.8, 1.10, 8.2]

8. Eight cases of ineffective management have been reported which include non-

completion of IBRD assisted project, blockage of funds due to non-energizing the

feeder, theft of energy, undue favour to an industrial consumer and incorrect

application of tariff (Rs.2,882 million).

[Para 11.2, 12.2, 12.3, 13.2, 14.2, 15.2-3, 16.2]

9. Thirteen cases of ineffective internal controls have been reported such as payment

to the contractor through open cheques, non-adjustment of advances for land

acquisition, non-recovery of revenue and capital cost (Rs.1,635 million).

[Para 1.3, 1.4, 1.5, 1.9, 3.5, 11.3, 13.3, 13.5, 13.10-12, 15.5, 15.6]

10. There are five cases of lapse in financial management on account of payment of

demurrage charges, expenditure without approval of the budget and giving credit

to the consumers without adjusting the energy units (Rs.172 million).

[Para 1.7, 8.3-5, 16.3]

11. Fourteen cases pertaining to weak procurement and inventory management have

also been incorporated which include theft/shortage/non return of material, non-

utilization/non-disposal/non-accountal of material and purchase of defective

meters (Rs.137 million).

[Para 8.6, 12.4, 13.4, 13.6-9, 14.3, 14.4, 15.4, 15.7-8, 16.4-5]

A number of observations were settled during the course of finalization of the report

because requisite action, including recovery of Rs.445 million, was taken by the

management. The PAC directives are attached as Annexure-A.

RECOMMENDATIONS

1. WAPDA should take necessary steps to evaluate, institute and strengthen the

management, budgeting and accounting controls to achieve the following control

objectives:

i. Minimization of line losses and dependence on Government subsidy;

ii. Better management of receivables for which a campaign needs to be initiated

to ensure timely recovery, particularly from the private consumers;

iii. Prevention of delay in completion of projects under Vision-2025 to avoid cost

overrun and deferment of envisaged benefits;

iv. Adherence to International Accounting Standards for provision of doubtful

debts;

v. Optimization of inventory procurement and utilization;

vi. Adjustment of advance payments made to the Government of the Punjab for

acquisition of land;

vii. Proper accountal of stores particularly serviceable material;

viii. Correct application of tariff, regularization of unauthorized extension of load

and removal of material from defaulters’ premises;

ix. Availability of adequate funds for early completion of incomplete

IBRD/OECF works.

1. WATER WING

Water Wing of WAPDA is responsible for development of water resources of the

country. It is headed by Member Water who controls the water sector of the entire

country divided into north, central and south zones.

1.1. Physical Status of Projects

Under Vision-2025 program, Water Sector has started eight projects namely, Mangla

Dam Raising, Greater Thal Canal, Rainee Canal, Kachhi Canal, Mirani Dam, Gomal Zam

Dam, Sabakzai Dam, and Satpara Dam. During the year 2003-04, Water Wing has spent

Rs.6,009.361 million on these National Water Resources Development Projects. These

are scheduled to be completed in 2006-07 to achieve the following objectives:

i) Development of water storages.

ii) Additional area brought under irrigated agriculture.

iii) Improvement in Hydel-Thermal Power mix.

iv) Social up-lift of the nation.

These projects were found behind the schedule as on 31st December, 2004 as given below:

Sr.

No. Name of Project Construction

Period

(Years)

Completion

Date Physical status on 31st

December, 2004 Planned

%

Achieved

%

1. Greater Thal Canal 6 June, 2006 13.6 10.85

2. Gomal Zam Dam 4 September, 2006 54.1 13.3

3. Sabakzai Dam 3 December, 2006 16 13

4. Kachhi Canal 5 June, 2007 9 5.5

5. Rainee Canal 5 June, 2007 10 7.5

6. Mirani Dam 4 June, 2006 60 55

7. Mangla Dam Raising

i) PC-II

ii) PC-I

4.5 December, 2007

94.9

8.6

82.9

7.1

8. Satpara Dam 4 June, 2006 22.72 14.29 Source: Progress Reports of the Projects.

Delay in completion of these projects appears inevitable which will increase the cost of

the projects and deprive the people from timely socio-economic benefits.

1.2 Payment of heavy claims of Rs.3,247.076 million without observing procedure

As per para 23 of GFR, Vol.-I and Instruction-III (Para-1) of “Guideline for Enforcing the

Responsibility for losses sustained by the Authority through fraud or negligence of

individuals, 1982”, the payment due to the negligence and irregularity on the part of

responsible needs investigation for accountability.

In Ghazi Barotha Hydro Power Project (GBHP), uptil June, 2004 seventy-nine claims

amounting to Rs.35,106.075 million were submitted by three main contractors on account

of stoppage of work, delay in payments, revision of drawings/designs, extension of time,

additional costs, depreciation and demurrage, additional testing charges in camp area,

unforeseen conditions and interpretation of contract etc. Out of these seventy-nine claims,

the Consultant/Engineer determined twenty-nine claims for Rs.3,247.076 million as

WAPDA was held responsible for the delay. Payment was made by the WAPDA on the

certification of the consultant without vetting and clearing of the same by Central Contract

Cell of WAPDA as per procedure. The amount of forty-six claims valuing Rs.31,282.291

million was not accepted by the Consultant while four claims valuing Rs.576.708 million

were yet to be determined.

The matter was referred to the management in April, 2003 and discussed in a meeting

held on 4th October, 2003. It was replied that the claims of contractors were raised under

clause 53 of contract and finalized either by amicable settlement between the employer

(WAPDA) and contractor or through dispute resolution process. Audit was of the view

that payment of such heavy amounts needed proper scrutiny by the WAPDA Central

Contract Cell. The draft para was issued to the Ministry in January, 2005. It was replied in

a meeting dated 10th February, 2005 that Authority has constituted a committee headed by

G.M (CCC), which will submit its report within 15 days but the same was not submitted. It

was discussed in DAC meeting held on 19th March, 2005 wherein DAC directed the

management that the decision of the Authority in the light of inquiry committee report,

when received, should be communicated to Audit. The decision of Authority was not

received till the finalization of this report.

1.3 Non-adjustment of account of Rs.1,145.170 million paid on account of land

compensation

As per clause K of Section XVI of Book of Financial Powers for WAPDA, the accounting

unit is required to record full details of land acquired and obtain the adjustment accounts of

advances given to Land Acquisition Collector/executing agencies.

In Greater Thal Canal Project, Rs.1,145.170 million were transferred from August, 2001 to

June, 2003 by WAPDA to Irrigation and Power Department, Government of Punjab for

acquisition of land. However, adjustment account containing details of payments of land

compensation was not received by the project authorities of WAPDA till finalization of

report to establish that the money was spent for the purpose for which it was advanced to the

Government of Punjab.

The matter was taken up with the Project authorities in July, 2002 and discussed but no

adjustment account was made available to Audit. The draft para was issued to the

Principal Accounting Officer (PAO) in November, 2003 and was also discussed in DAC

meeting held on 19th March, 2005 wherein the Management stated that the adjustment

account had been received and would be shown to Audit. The DAC directed the project

authorities to get the record verified from Audit by 6th April, 2005. The Management did

not produce the relevant record till the finalization of this report.

1.4 Irregular expenditure of Rs.217.011 million

Any increase over and above the BOQ is required to be regularized through variation orders

as provided in Section-V of Book of Financial Powers for WAPDA and contract clause 52.3

of contract No. C-01 in respect of Ghazi Barotha Hydro Power Project (GBHP).

a) Rs.242.810 million were paid, against the BOQ provision of Rs.50.400 million,

which was 382% more than provided sum, without approval of the variation order to

M/s GBC upto IPC-70 under BOQ item No. AO-012 for transportation and insurance of

Employer’s provided equipment

b) In another case Project authorities paid Rs.32.333 million against the BOQ

provision of Rs.7.732 million for track rail through unapproved variation order No.33.

This was 318% more than the provision.

Thus payment of Rs. 217.011 million (Rs. 192.410 + Rs.24.601 million), without

approval of variation order by the Central Contract Cell of WAPDA, was irregular.

The para was issued to the management in April, 2003 and was discussed on 4th October, 2003.

The project authorities stated in October, 2003 that the cost was influenced by external

factors and BOQ provision was just an estimate. It was further stated that situation could

not be foreseen at the time of tendering and change in quantity would be taken into

account in the final variation order. Audit was of the view that excess payment to the

extent of 382 % and 318 % above BOQ was not justified.

The draft para was referred to the Ministry in January, 2005. It was replied in

February, 2005 that increase in cost of transportation and insurance for employer’s

provided equipment was due to escalation in freight charges, cost of fuel, 9/11 incident and

revision of SROs. Increase in cost of track rails was due to Chinese Gantry Cranes which

were much heavier than assumed (i.e. ASTM Standard European Crane) at the tender stage.

DAC on 19th March, 2005 directed the management to submit a comprehensive and

detailed reply. Management did not furnish the reply till the finalization of this report.

1.5 Non-adjustment of account of Rs.194.882 million paid on account of land

compensation

As per clause K of Section XVI of Book of Financial Powers for WAPDA, the accounting

unit is required to record full details of land acquired and obtain the adjustment accounts of

advances given to Land Acquisition Collector/executing agencies.

In Kachhi Canal Project, Rs.259.137 million were transferred from December, 2002 to June,

2003 by WAPDA to Provincial Irrigation and Power Department, Government of Punjab for

acquisition of land. However, adjustment account containing details of payments of land

compensation was not received by the project authorities of WAPDA till finalization of this

report to establish that the money was spent for the purpose for which it was advanced to the

Government of Punjab.

The matter was taken up with the Project authorities in July, 2003 and discussed with

the General Manager (South) on 2nd December, 2003 but no adjustment account was

made available to Audit. The draft para was issued to the Principal Accounting

Officer (PAO) in January, 2004 and was also discussed in DAC meeting held on

19th March, 2005 wherein the management stated that adjustment account had been

received and would be shown to Audit. The DAC directed the project authorities to

get the relevant record verified from Audit by 6th April, 2005. The management did

not produce the relevant record till the finalization of this report.

1.6 Loss of Rs.96.986 million per day due to delay in completion of project

As per PC-I, Ghazi Barotha Hydro Power Project for generation of 1,450 MW electricity

was to be completed by June, 2000.

Project was actually completed in August, 2003 after a delay of 38 months. The project

consultants had estimated that any delay in the project would lead to an increase of

Rs.31.233 million per day in cost of construction. Generation loss was assessed at

Rs.65.753 million per day. According to the consultant, the project was delayed by

WAPDA as well as the contractor. The request of the contractor dated 28th July, 2001 for

extension of time was not accepted as he had already delayed the project by eleven months.

Liquidated Damages (LD) amounting to Rs.1,590 million were also imposed on the

contractor out of which a sum of Rs.210 million was recovered. The contractor left the site

in September, 2001. However, a supplementary agreement was signed in April, 2002 by

WAPDA with the same contractor (M/s GBC). According to the supplementary agreement

not only the time extension was allowed but already imposed LD was also waived off.

Audit was of the view that overall delay in completion of the project by thirty-eight months

caused cumulative financial loss of Rs.110,564 million (approximately).

The matter was reported to management in April, 2003 and to Ministry in February, 2005. It

was discussed in DAC meeting held on 19th March, 2005 wherein management stated that

the project could not be completed in time due to delay in arrangement of finances, land

acquisition, late delivery of mechanical and electrical equipment and 9/11 incident. Audit did

not agree with the reply as it was the responsibility of the management to ensure all such

arrangements in time. Discussions in the DAC meeting remained inconclusive and the

Committee referred the matter to PAC for further deliberation.

1.7 Expenditure of Rs.32.216 million incurred without the provision of Budget

In the light of note given below Clause-B Section VIII of Book of Financial Powers for

WAPDA, transfer of funds from one project to another can not be made.

In SCARP Monitoring Organization, WAPDA, an expenditure of Rs.32.216 million was

incurred during the years 2001-02 and 2002-03 without provision of budget. Funds

of other projects were utilized for executing the project, thus the entire expenditure

was irregular.

The matter was taken up with the project authorities in October, 2003. It was stated that

there was no need of approval as the expenditure was incurred from the saving of other

projects. The reply was not convincing as saving of one project could not be utilized on

other project. The draft para was issued to the Ministry in September, 2004. It was

replied in December, 2004 that PC-II of SMO (SCARP Monitoring Organization) for the

years 2001-02 and 2002-03 regarding Revenue Budget was prepared and submitted to

Ministry of Water & Power for approval. Its approval was regretted on account

of delayed submission. Later on, the same was approved by Member (Water) on

30th June, 2003.

DAC on 19th March, 2005 directed that revised reply be provided to Audit by 30th March,

2005 but no response was received till the finalization of this report.

1.8 Extra expenditure of Rs.16.092 million due to exploitation of material from

non-designated source

As mentioned in clause SP 19.30 of contract C-01 of GBHP the quarries of riprap

material located near Topi and Swabi Road were designated as possible sources. It was

further clarified in clause SP 20 that the contractor may purchase at his own option and at

no additional cost to the employer, explore, locate, investigate and develop quarry on

other sites.

On the contrary the contractor purchased 610,292 metric ton riprap from Burhan, other

than the designated source, @ Rs.35-45 per ton, whereas the same could have been

exploited @ Rs.15 per ton from designated source.

The employer had to pay extra expenses of Rs.16.092 million due to higher rates. In

addition to it, export tax of Rs.1.319 million for July, 1998 to November, 1999 was also

paid which stood abolished in June, 1998.

The matter was reported in April, 2003. Project authorities replied that as per contract,

contractor may purchase at his own option and at no additional cost to the employer,

explore, locate, investigate and develop these or other quarry sites to meet the requirement

under the contract. Therefore, by selecting Burhan, no violation of the contract has

been committed.

The reply was not accepted as the additional cost of Rs.16.092 million was paid to the

contractor in contravention of contract provisions. Audit would have no objection to

selection of Burhan as a source provided that no additional cost was borne by the

employer. The draft para was issued to the Ministry in January, 2005 and discussed in

DAC meeting held on 19th March, 2005 wherein management stated that detailed reply

had been furnished to Audit. DAC directed Audit to comment upon the reply submitted

by the management. Audit was of the view that the extra expenditure borne by the

employer on this account was against the contract clause.

1.9 Loss of Rs.9.911 million due to issuance of open cheques to contractor

As per para 22 of WAPDA Accounting Manual, payment is to be made through crossed

cheques. In Deg Drainage Project (Contract No.SDB-14) the contractor nominated an

Attorney to receive payment through crossed cheques. The project authorities issued

thirteen open cheques, amounting to Rs.16 million, instead of crossed cheques, in

violation of Authority’s instructions on the subject. The contractor did not acknowledge

the payment of Rs.9.911 million in respect of nine cheques and asked the project

authorities for payment of the same.

The matter was reported to the management in October, 2003 and discussed in a meeting

held in December, 2003. It was replied that a civil suit against the attorney of the contractor

has been filed and action against the officials has been taken. No documentary evidence

in support of reply was produced. The draft para was reported to the Ministry in

December, 2004. Management replied in February, 2005 that Inquiry Committee was

constituted which recommended disciplinary action against persons at fault and to file a

suit for recovery against the Attorney. It was discussed in the DAC meeting held on 19th

March, 2005 wherein management stated that case was with NAB. The DAC directed that

latest position of the case be intimated to Audit. No progress was received till the

finalization of this report.

1.10 Inordinate delay in completion of water supply system costing Rs.2.143 million

In the light of work order No. AF-X/C-II/10/99-239 dated 06.03.1999, the work of laying

and fixing of PVC Pipe valuing Rs.1.793 million in Tarbela Dam Project was to be

completed within 2 months. PVC Pipe valuing Rs.1.793 million was purchased against

supply order No. 98-7 dated 1st January, 1999. The pipe was required to be laid for a new

water supply line at Sobra City because the old pipe line was demolished due to

construction of Ghazi Barotha Hydro Power Project. For laying and fixing of this pipe, a

contract was awarded in March, 1999 at a cost of Rs.0.522 million with the completion

period of two months. Against the work, the contractor was paid a sum of Rs.0.350 million

by September, 1999. However, the work was incomplete even after expiry of five years.

Audit was of the view that the very purpose for which the pipe was purchased was not

achieved and the expenditure of Rs.2.143 million (1.793 + 0.350) had gone waste.

The matter was taken up with the project authorities in December, 2002 and March, 2003.

It was discussed in a meeting held on 24th June, 2004 wherein it was replied that efforts

were being made to purchase the pipe and valve required to complete the work within a

month. The reply was not acceptable as the action was being taken after lapse of five years

and would require more funds and extension in completion period. The draft para was

issued to the Ministry in September, 2004. It was replied in November, 2004 that the work

could not be completed in time as some material relating to the work could not be arranged

due to very high bids and competent authority decided to complete remaining work

departmentally upto March, 2005. The case was also discussed in DAC meeting held on

19th March, 2005 wherein management explained that the work was being carried out

departmentally and there was no wastage of money. It was also stated that there would be

no extra expenditure and it would be within sanctioned estimate. The DAC directed that

latest reply be given within a week and to complete the work upto 30th March, 2005. No

progress in this regard was intimated till finalization of the report.

2. POWER WING

Power Wing is responsible for preparing schemes for the generation, transmission and

distribution of power. It is also responsible for the construction, maintenance and

operation of power houses/grids. This Wing is headed by Member Power.

2.1 OVERVIEW OF FINANCIAL STATEMENTS

After administrative restructuring of Power Wing in 1998, fourteen corporate companies

and Residual Power Wing have been carved out of the WAPDA Power Wing. As each

company has started preparing its own financial statements, therefore, consolidated

financial statements for the whole Wing are not prepared by the Authority. Hence, it was

difficult to make an assessment of the overall financial health and performance of the

Power Wing. However, consolidated Profit/Loss of all the companies and the Residual

Power Wing for the last four years was worked out by Audit from the Financial

Statements of various entities of Power Wing for analysis as given below:

CONSOLIDATED PROFIT/LOSS

(Rs. in million) 2000-01 2001-02 2002-03 2003-04

A. Residual Power Wing 10,856 4,907 20,397 13,248

B. Corporate Companies

1. GENCO-I 1 (27) (384) (0.172)

2. GENCO-II (14) (2) (6) (8)

3. GENCO-III (5) (0.141) (59) (80)

4. GENCO-IV - - - (76)

5. NTDC (4,290) (7,392) (2,746) (1,875)

6. FESCO (480) (788) (400) 182

7. GEPCO (334) (358) (25) (313)

8. HESCO (762) (2,662) (4,150) (1,128)

9. IESCO (302) (503) (312) (139)

10. LESCO (880) (848) (793) 482

11. MEPCO (665) (904) (135) (19)

12. PESCO (493) (2,574) (1,794) (5,451)

13. QESCO (1,313) (1,388) (2,848) (1,114)

14. TESCO - - - (2,915)

Total (9,537) (17,446) (13,652) (12,454)

[A+B] Consolidated Profit/(Loss) 1,319 (12,539) 6,745 794

During 2000-01 the Power Wing earned Net Profit of Rs.1,319 million. In 2001-02 it

sustained a loss of Rs.12,539 million. To bail WAPDA out of financial crisis a subsidy of

Rs.11,600 million was injected by the Government during 2002-03. In 2003-04 WAPDA

financial statements reflected a profit of Rs.794 million.

2.2 Line Losses

Line losses is one of the main reasons for WAPDA’s financial problems because financial

impact of 1% line losses of WAPDA is more than Rs.2,500 million per annum. Due to its

huge financial impact WAPDA has been trying to control its excessive line losses but major

reduction has not been achieved as yet.

Overall line losses of the whole WAPDA system decreased from previous year’s 26.0% to

25.5% during the year 2003-04. Line losses were still very high. (Indonesia 14.11%,

Malaysia 13.97%, Philippines 20.9%, Sri Lanka 18.8% and Vietnam 18.2% (Source: Electric

Power in Asia and Pacific, 2001-02). Six distribution companies out of eight could not

achieve the target of line losses fixed for the year 2003-04. Particularly, distribution losses of

Hyderabad Electric Supply Company and Peshawar Electric Supply Company were very

high as given below:

S.

No.

Company 2002-03 2003-04 Over the

target

(2003-04)

Amount

(Rs. in

million) Actual Target Actual Target

1 FESCO 11.20 12.00 10.40 10.20 0.20% 57.02

2 GEPCO 13.00 14.00 11.90 12.00 0 0

3 HESCO 34.92 27.00 35.36 30.00 5.36% 1,169.70

4 IESCO 10.95 10.00 10.90 10.00 0.90% 196.00

5 LESCO 14.70 14.00 14.10 13.20 0.90% 433.78

6 MEPCO 17.50 17.30 16.96 16.00 0.96% 312.50

7 PESCO 32.03 23.00 31.41 27.60 3.80% 1,100.00

8 QESCO 18.10 17.00 16.00 17.00 0 0

3. RESIDUAL POWER WING

Residual Power Wing consist of those formations which remained with the Authority

after restructuring of WAPDA Power Wing into fourteen companies in 1998.

Main function of this Wing is to construct and maintain various Hydro Power projects.

It also operates those small thermal power stations which have not been transferred to the

Generation Companies (GENCOs). It also arranges payments for Independent Power

Producers (IPPs) for the energy purchased by National Transmission & Despatch

Company (NTDC).

After restructuring of the Power Wing in 1998, the WAPDA is preparing the financial

statements of Residual Power Wing only.


As transfer price/tariff for supply of power by NTDC to DISCOs has not been determined

by NEPRA, as provided under Electricity Regulatory Act 1997, the financial statements

prepared on the basis of provisional transfer price determined by WAPDA do not present

true affairs of the Residual Power Wing.

An overview of financial statements of Residual Power Wing is given below:

(Rs. in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 87,683 116,084 121,246 121,628

Total Operating Cost 86,233 116,376 119,775 107,619

OPERATING PROFIT/(LOSS) 1,450 (292) 1,471 14,009

Other Income 13,172 9,227 10,586 8,121

Financial Charges 3,766 4,028 3,260 8,882

NET PROFIT/(LOSS) 10,856 4,907 8,797

*20,397

13,248

Source: Financial Statements of the Residual Power Wing for the financial years 2000-01 to 2003-04

* Including Rs. 11,600 million subsidy received from Govt. of Pakistan during the year 2002-03 against cash shortfall of WAPDA.

Since 2001-02 net profit has been increasing. Main reasons for the increase in net profit

from Rs.8,797 million in 2002-03 to Rs.13,248 million in 2003-04 were as under:

i) Electricity sale increased by 0.31% due to increase in number of units sold i.e.

62,582 million in 2002-03 to 67,350 million in 2003-04.

ii) Cost of electricity decreased by 13% i.e. from Rs.111,010 million in 2002-03 to

Rs.96,581 million in 2003-04 on account of the following factors:

Decrease in purchase of electricity as well as reduction in rate by IPPs i.e.

22,045 million units purchased @ Rs.5.0014/unit in 2002-03 as compared

to 20,292 million units @ Rs.4.7896/unit in 2003-04.

Increase in hydel generation from 22,208 million units in 2002-03 to

27,281 million units in 2003-04.

3.2 RECEIVABLES

Analysis of receivables as detailed below revealed that Rs.58,906 million were outstanding

on 30th June, 2003 which rose to Rs.69,613 million on 30th June, 2004. Persistent rise in

receivables during the last four years is causing serious cash flow problems for WAPDA.

RECEIVABLES

(Rs. in million)

CATEGORY As on

30th June,

2001

As on

30th June,

2002

As on

30th June,

2003

As on

30th June,

2004

A. Federal Government:

Deptt./Agencies

Defence

AJ&K

1,414

2,675

1,559

419

17

1,676

338

677

594

585

375

(31)

Sub Total 5,648 2,112 1,609 991

B. Provincial Governments:

Punjab

NWFP

Sindh

Balochistan

547

891

3,573

(115)

(251)

(131)

316

38

(335)

1,352

506

67

146

98

532

277

Sub Total 4,896 (28) 1,590 1,053

C. (i) FATA

(ii) T/Wells in

Balochistan

5,477

376

12,425

393

26,876

464

36,783

633

Sub Total 5,853 12,818 27,340 37,416

D. (i) KESC

(ii) Other Private

Consumers

10,396

17,092

7,014

24,432

3,515

24,267

2,286

27,184

Sub Total 27,448 31,446 27,782 29,470

E. Autonomous bodies under

Federal Government

-

300

409

449

Sub Total - 300 409 449

F. Others (W&P) 53 176 295

Sub Total - 53 176 295

Grand Total (A to F) 43,885 46,701 58,906 69,613 Source: 2003-04 MIS-13 WAPDA and World Bank

Receivables from “Other Private Consumers” which were Rs. 24,267 million on 30th June,

2003 increased to Rs. 27,184 million on 30th June, 2004 need to be taken special note of by

the Government and the PAC. It effects the liquidity position of the Wing and completely

distorts its financial position. Management was asked to identify reasons for outstanding

amounts against “Other Private Consumers” but no clarification was given.

3.3 PROVISION FOR DOUBTFUL DEBTS

At the end of the year 2003-04, status of doubtful debts of the distribution companies

was as under:

(Rs. in million)

As on 30th June, 2003 As on 30th June, 2004

Name of

Company

Trade

Debts

Provision Percentage

(%)

Trade

Debts

Provision Percentage

(%)

FESCO 2,178 130 5.97 2,476 117 4.73

GEPCO 3,007 239 7.95 2,858 241 8.43

HESCO 5,199 4,244 81.63 5,756 5,215 90.60

IESCO 2,695 839 31.13 2,960 829 28.01

LESCO 6,208 1,690 27.22 5,896 1,688 28.63

MEPCO 3,699 1,213 32.79 3,675 1,211 32.95

QESCO 4,494 2,650 58.97 5,054 3,312 65.53

PESCO 36,118 1,598 4.42 8,420 3,508 41.66

TESCO - - - 32,350 5,793 17.91

Total 63,598 12,603 19.82 69,445 21,914 31.56

Source: Manager Finance (HQ) Power, WAPDA.

The companies made heavy provisions for doubtful debts during the year 2003-04

ranging from 4.7% to 90 %. Cumulative provision as on 30th June, 2004 was

Rs.21,914 million which was 31.56% of total trade debts. An increase of 11.74% in this

provision during 2003-04 needs proper justifications. WAPDA’s liquidity problems can

be mitigated considerably if its receivables, particularly from the private consumers, are

brought down through aggressive recovery campaigns.

3.4 PAYABLES

Comparative position of payables is as under: (Rs. in million)

Description As on 30th

June, 2001

As on 30th

June, 2002

As on 30th

June, 2003

As on 30th

June, 2004

Oil Companies - - 2,108 2,713

Gas 1,738 4,517 - -

IPPs 6,941 6,147 496 -

KAPCO-Settlement 7,687 7,401 - -

Misc-Operating 2,491 170 - -

Development 133 - - -

DSL-GOP 2,572 21,615 22,329 10,043

Water Wing/Other etc. 1,769 1,526 1,485 -

Total 23,331 41,376 26,418 12,756

Source: D.D. CPCC/1334 Dt: 04th February, 2005.

The total outstanding liabilities have gradually decreased from Rs.41,376 million in the

year 2001-02 to Rs.12,756 million in the year 2003-04 mainly due to conversion of debt

servicing liability of WAPDA into Government of Pakistan’s equity.

3.5 Non-recovery of Rs.4.116 million from contractor on account of supplying

sub-standard material

According to section-VI of Book of Financial Powers for WAPDA, the payment of

purchase order is subject to inspection of material by Chief Engineer Inspection and

Surveillance WAPDA and Factory test reports.

A contract (under IBRD Loan Scheme) was awarded by MD (Power) for manufacturing

of 7,599 LT & 4,120 HT pre-stressed cement concrete poles to M/s Sind Precast and

Pre-stressing Industries Karachi. Payment of these poles amounting to Rs.4.630 million

was made in July, 1997 to the contractor without proper inspection of the material. The

material was found sub-standard on inspection and an enquiry committee was constituted

for inspection of material which was jointly inspected by WAPDA and contractor’s

representatives in May, 2002 who also found the material as sub-standard. On the

recommendation of enquiry committee, in July, 2003 General Manager (C&M) ordered

recovery valuing Rs.4.116 million from contractor. The penal amount was not recovered

from the contractor which resulted into loss to WAPDA to the tune of Rs.4.116 million.

The matter was taken up with the Authority in January, 2004 followed by reminder to

discuss the same in February, 2004. No response received from the management and

a draft para was issued to the Principal Accounting Officer (PAO) in June, 2004. The

draft para was discussed in DAC meeting on 19th March, 2005. DAC directed to file a

court case against the contractor.

4. JAMSHORO POWER GENERATION

COMPANY

Jamshoro Power Generation Company (GENCO-I) was incorporated in August, 1998 and

started its commercial operations from March, 1999. Its principal activity is to generate

thermal power for selling it to NTDC.

The Company took over all the properties, rights, assets, obligations and liabilities

of Thermal Power Stations at Jamshoro, Lakhra and Kotri, owned by WAPDA and

such other assets and liabilities as agreed upon. However, from July, 2002 all the

assets and liabilities relating to Lakhra Power Station were transferred back to WAPDA

at book value.


Sales revenue of the Company has been accounted for at the rate of Rs.2.31/kWh (2003:

Rs.2.44) for energy charges and Rs.199.69/kwh/month (2003: Rs.196.69) for capacity

charges. The rate was determined on the basis of full cost recovery of the Company as

agreed with NTDC till finalization of tariff and power purchase agreement. In the

absence of tariff determination by NEPRA, the financial statements prepared on the basis

of full cost recovery method do not present true financial picture of the Company.

An overview of the financial statements of the Company in tabulated form is

given below:

(Rs.in million) 2000-01 2001-02

(Restated)

2002-03 2003-04

Total Revenue 8,138 10,690 11,060 10,564.609

Total Operating Cost 6,237 9,892 10,703 9,943.876

Operating Profit/(Loss) 1,901 798 357 620.733

Other Income 8 8 13 9.708

Financial Charges 1,908 833 754 630.613

Net Profit/(Loss) 1 (27) (384) (0.172)

Source: Financial Statements of the Company for the years 2000-01 to 2003-04

Net loss increased from Rs.27 million in 2001-02 to Rs.384 million in 2002-03 but it

decreased to Rs.0.172 million in the year 2003-04. Reasons for decrease in loss were

as under:-

i) Decrease in average price of furnace oil during the year (Rs.10,773/MT) as

compared to the previous year (Rs.11,039/MT)

ii) The electricity generation on gas increased by 21.56% as compared to the last

year. Gas/Furnace Oil mix was 79:21 during 2003-04 as compared to 66:34

during the last year.

iii) Decrease in establishment cost due to reversal of Rs.136.7 million provision made

for compensated absences as worked out by Actuarial Consultant.

iv) Reduction in interest charges from Rs.723.497 million in 2002-03 to

Rs.595.68 million in 2003-04 (i.e. Rs.173.81 million).

Further efforts are required to be made by the management to turn the company into an

efficient and profit earning organization.

Evaluation of Assets

As per Chartered Accountant’s (M/s Taseer Hadi Khalid & Co.) report on the company’s

accounts for the year 2003-04, the valuation and title of assets & liabilities transferred to

the company could not be finalized due to non-revision of loan agreement with the

lenders in the light of Business Transfer Agreement and Supplementary Business

Transfer Agreement.

5. CENTRAL POWER GENERATION COMPANY

Central Power Generation Company (GENCO-II) was incorporated in October, 1998 and

started its commercial operations in March, 1999. Its principal activity is to generate

thermal power for selling it to NTDC.

The Company took over all the properties, rights, assets, obligations and liabilities of

Thermal Power Stations at Guddu, Sukkur and Quetta owned by WAPDA and such other

assets and liabilities as agreed upon.


Electricity tariff with NTDC, which is sole purchaser of the electricity from the

Company, was not finalized during the year 2003-2004. Provisional tariff approved by

WAPDA was as under:-

Energy Purchase price Rs.1.7145/kWh

Capacity purchase price Rs.138.178/kWh/Month

However, the tariff petition has been approved by NEPRA and intimated to Federal

Government on 29th March, 2004 and has become effective w.e.f. 26th July, 2004.


given below:-

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 14,000 14,377 15,591 16,251


OPERATING

PROFIT/(LOSS)

951 713 629 491

Other Income 30 52 24 74

Financial Charges 995 767 660 573

NET PROFIT/(LOSS) (14) (2) (7) (8) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

Net loss of the Company decreased from Rs.14 million in 2000-01 to Rs.8 million in

2003-04. However, it increased as compared to 2001-02 & 2002-03. Total revenue in the

year 2003-04 increased by 4.23% with respect to the year 2002-03 but on the other hand

the total operating cost increased by 5.33% during the same period. The main reasons of

increase in total operating cost were as following:-

i) Increase in number of units of electricity produced which shows improvement in

the performance.

ii) Increase in retirement benefits of employees due to change in policy based on

Actuarial Report carried on as at 30th June, 2004.


As per Chartered Accountant’s (M/s M. Yousaf Adil Saleem & Co.) report on the accounts

pertaining to the year 2003-04 no reliable record was available with the Company from

where the Auditors could verify/check the value of Company’s fixed assets and capital

work-in-progress.

6. NORTHERN POWER GENERATION

COMPANY

Northern Power Generation Company (GENCO-III) was incorporated in October, 1998.

Its principal activity is to generate power through seven thermal power stations located at

Muzaffargarh, Multan, Shahdrah and Faisalabad, and to sell it to NTDC. It took over all

the properties, rights, assets, obligations and liabilities from WAPDA and such other

assets and liabilities as agreed upon.


Electricity tariff with NTDC, the sole purchaser of the power from the Company, is yet to

be finalized. Provisional tariff approved by WAPDA for the year 2003-04 was as under:-

Energy Purchase price Rs.2.33083/kWh

Capacity purchase price Rs.104.83199/kWh/Month

The tariff petition was filed with NEPRA, approval of which was awaited. Hence, the

financial statements prepared on the basis of provisional tariff did not depict true

financial picture of the Company.


given below:- (Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 21,691 19,455 22,221 19,872


OPERATING PROFIT/(LOSS) 3,803 998 331 270


Financial Charges 3,840 1,062 605 443

NET PROFIT/(LOSS) (5) (1) (60) (80)

Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

The Company sold 7,671.65 gWh units during year 2003-04 which were 6.2% higher

than the previous year. It sustained a loss of Rs.80 million during the year 2003-04 which

was Rs.20 million higher than the previous year. Major reasons for increase in loss were:-

i) Decrease in revenue generation by 10.57% due to reduction in provisional tariff

applied by WAPDA i.e. energy purchase price reduced from Rs.2.7728/kWh

in 2002-03 to Rs.2.33083/kWh in 2003-04 and capacity purchase price from

Rs.116.478 in 2002-03 to Rs.104.83199/kWh/Month in 2003-04.

ii) Other income decreased from Rs.214 million to Rs.93 million.

iii) Recognition of loss of Rs.21.185 million during the year 2003-04 due to foreign

currency fluctuations as compared to gain of Rs.89.67 million in 2002-03.

7. LAKHRA POWER GENERATION COMPANY

Lakhra Power Generation Company (GENCO-IV) was incorporated in February, 2002

and started its commercial operations in July, 2002. Its main objective is to generate

electricity from coal and sell it to NTDC.

The Company took over all the properties, rights, assets, obligations and liabilities of

Thermal Power Station Lakhra from WAPDA and such other assets and liabilities as

agreed upon. It remained attached with Jamshoro Power Company Ltd for about three

years. An application for grant of power generation license was submitted to NEPRA in

April, 2004 which has not yet been granted.


Sales revenue of the Company has been accounted for at the rate of Rs.1.15/kWh

(2002-03: Rs.0.95/kWh) as energy charges and Rs.442/kWh/month (2002-03: Rs.546.31)

as capacity charges. This rate was determined on the basis of full cost recovery of the

Company as agreed with NTDC till finalization of tariff and power purchase agreement.

Due to non-determination of tariff by NEPRA, the financial statements prepared on the basis

of full cost recovery method did not present true picture of the Company’s financial affairs.

An overview of the financial statements of the Company is given below: (Rs.in million)

21st February, 2002

to 30th June, 2003

2003-04

Total Revenue 678 585

Total Operating Cost 589 602

OPERATING PROFIT/(LOSS) 89 (17)

Other Income 4 7

Financial Charges 97 66

NET PROFIT/(LOSS) (4) (76)

Source: Financial Statements of the Company for the years 1999-2000 to 2003-04

During the year 2003-04 Company sold 139.457 gWh units of electricity for

Rs.585 million to NTDC which was more than the sale price calculated for the previous

year i.e. 125.557 gWh (167.4/16x12) for Rs.509 million. However, the net loss increased

from Rs.4 million in the period starting from 21st February, 2002 to 30th June, 2003 to

Rs.76 million in 2003-04. Main reason for increase in loss was increase in cost of sales. It

was 87% of sales during the previous period but in 2003-04 it increased to 103% of sales

mainly due to charging of excess depreciation of Rs.109 million as compared to the

previous year.

Efforts should be made to earn profit in the coming years and turn it into a financially

viable organization.


The Chartered Accountant’s (M/s Taseer Hadi Khalid & Co.) report on the accounts

pertaining to the year 2003-04 indicated that properties, rights, assets/obligations have

been transferred through a Business Transfer Agreement as amended by Supplementary

Business Transfer Agreement. The said agreement could not be executed due to non-

completion of formalities.

8. NATIONAL TRANSMISSION AND DESPATCH

COMPANY

National Transmission and Despatch Company (NTDC) was incorporated in

November, 1998. Its main objective is to purchase electricity from the Residual Power

Wing, GENCOs and IPPs and to sell it to the Distribution Companies (DISCOs). It also

constructs grid stations and installs transmission lines besides providing technical

services and training to DISCOs staff. The Company took over all the properties, rights,

assets, obligations and liabilities relating to Transmission and Grid Divisions from

WAPDA and such other assets and liabilities as agreed upon.


The electricity sold by NTDC to different DISCOs during the year 2003-04 had been

accounted for at different provisional rates ranging from Rs.1.680 to Rs.3.490/kWh

(Rs.2.116 to Rs.3.490/kWh for the year 2002-03). Sales to KESC have been made at rate

ranging from Rs.3.69 to 3.80/Kwh during 2003-04 (Rs.3.47 to 3.8/kWh during

2002-03). The sale rates, except for KESC, are subject to confirmation from National

Electric Power Regulatory Authority (NEPRA).

The purchase of electricity has also been accounted for at the provisional rate ranging from

Rs.1.147 to 2.331/Kwh during 2003-04 (Rs.2.213 to 4.049/Kwh for the year 2002-03). These

rates except for IPPs and KESC, are subject to confirmation from NEPRA.

The tariff petition was filed with NEPRA but approval was awaited. Hence, the financial

statements prepared on the basis of provisional tariff did not depict true financial affairs

of the Company.

An overview of the financial statements of the Company is given below:- (Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 135,557 157,872 173,305 185,342


Operating Profit/(Loss) 1,762 (5,877) (1,171) 905

Other Income 1,434 1,530 743 157

Financial Charges 7,486 3,045 2,318 2,937

Net Profit/(Loss) (4,290) (7,392) (2,746) (1,875) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

In the year 2003-04 the Company sustained a net loss of Rs.1,875 million which was

Rs.871 million less than the previous year. The total revenue in the year 2003-04

increased by 36.72% with respect to the year 2000-01 but on the other hand the total

Operating Cost also increased by 37.85% during the same period. Major reasons of this

decrease in loss were following:-

i) Decrease in transmission losses i.e. from 7.8% (4,908/62,694) in 2002-03 to 7.5%

(5,054/67,694) in 2003-04.

ii) Decrease in number of units purchased from and per unit average rate charged by

IPP. i.e. 22,045 million units @ Rs.5.0014 in 2002-03 to 20,292 million units

@ Rs.4.789 in 2003-04.

However, the expenditure under “operating expenses” significantly increased i.e. from

Rs.3,412 million in 2002-03 to Rs.15,543 million in 2003-04 due to recognition of

Rs.11,869 million as bad debts.


The Chartered Accountant’s (M/s Ford Rhodes Sidat Hyder & Co.) report on the

accounts pertaining to the year 2003-04 indicated that no reliable record was available

with the Company from where the Auditors could verify/check the value of Company’s

fixed assets and capital work-in-progress.

8.2 Blockage of funds of Rs.306.353 million due to poor contract management

As per letter No. 8985-92/CE/EHV/N dated 2nd November, 1998 regarding award of

contract of 500 KV Muzaffargarh-Gatti transmission line (Package-II), the construction and

commissioning of line was to be completed within 18 months from the date of

commencement of work at a cost of US$ 44.558 million FCC and Rs.390.460 million. The

contractor did not undertake the work. It was re-awarded to the same firm on 20th

December, 2001 at the same price with the grant of 10% advance of contract price and

extension of time period from 18 months to 22 months. Again contractor did not start the

work by 18th August 2004 which was required to be started in December, 2001. The project

Authority did not take any action regarding forfeiting of performance security bond in the

light of Para-V of Notice of award of contract. Resultantly the Authority’s funds to the tune

of Rs.306.353 million were blocked due to poor contract management.

The matter was reported to the project authorities in August, 2004, it was replied

in September, 2004 that advance payment was made to avoid expiry of foreign loan

facility (i.e. target date 15th March, 2003) The reply was not accepted, as the contractor

enjoyed the financial benefits for more than one and half year without starting the

work. The management replied in February, 2005 that mode of financing would be

changed to local financing due to favourable interest rate. NTDC’s Board of Directors

had also approved it and negotiations with local Banks/Financial Institutions were under

way. It was discussed in DAC meeting on 19th March, 2005, wherein management

promised to submit a revised reply but the DAC decided to refer the issue to the

Public Accounts Committee.

8.3 Loss of Rs.79.779 million on account of demurrage charges

Resident Representative Karachi, an organization of WAPDA, is responsible for timely

clearance of imported consignment from custom authorities through clearing agents and

arranges its transportation to the ultimate consignee to avoid payment of demurrage

charges. During 2002-03 Demurrage Committee held WAPDA responsible for the delay

in arranging funds for custom clearance and decided that a sum of Rs.79.779 million

should be borne by WAPDA, out of the total demurrage charges of Rs.90.094 million.

Thus the Authority sustained a loss to the stated extent.

The matter was taken up with the RRK in April, 2004. It was replied that case for writing

off the loss was being initiated with the concerned authorities. It was also discussed with

the management on 28th July, 2004 who replied that regularization action was in process.

The draft para was issued to the Ministry in December, 2004. It was discussed in DAC

meeting in March, 2005 wherein management stated that this para is the duplication of

para 4.1 of Special Audit Report-162 (SAR). DAC directed the Audit to verify this

aspect. On verification by Audit it was found that there was no duplication because the

contents of this para relates to demurrage claims decided in 2002-03 whereas para 4.1 of

SAR-162 relates to the cases of previous years. The management was intimated

accordingly but no response received from the management.

8.4 Non-recovery of Rs.20.310 million from Clearing Agents, Suppliers &

Transporters

Resident Representative Karachi is responsible for timely clearance of imported consignment

from custom authorities through clearing agents and arranges its transportation to the ultimate

consignee to avoid payment of demurrage charges. During 2002-2003 Demurrage

Committee held clearing agent, supplier and transporter responsible for the delay in custom

clearance and its transportation and decided that a sum of Rs. 20.310 million should be

recovered. The said amount could not be recovered from them. Thus the authority

sustained a loss to the stated extent.

The matter was taken up with the RRK in April, 2004 but no response was received. The

draft para was issued to the Ministry in December, 2004. It was replied in February, 2005

that out of Rs.20.310 million, an amount of Rs.18.961 million was recoverable from

M/s Transglobe (a clearing agent). The firm went into litigation, but the case was decided

against the firm. The firm then lodged an appeal against the court decision. Out of the

remaining amount of Rs.1.348 million (20.310 – 18.961), an amount of Rs.1.028 million

had already been debited to suppliers for recovery but no recovery had been intimated so

far. A balance amount Rs.0.32 million pertains to Ex-transporters against whom a suit

had been lodged. An inquiry committee had been constituted to investigate the matter and

to fix the responsibility. The para was discussed in DAC meeting held on 19th March,

2005, wherein management repeated their above reply. DAC directed to complete the

inquiry proceedings under intimation to Audit but no progress was intimated to audit.

8.5 Loss of Rs.20.200 million due to mismanagement

Resident Representative Karachi is responsible for timely clearance of imported consignment

from custom authorities through clearing agents and arranges its transportation to the ultimate

consignee to avoid payment of demurrage charges.

A sum of Rs.73.194 million was imposed as demurrage charges/Warehouse charges due

to delay in clearance of imported material on the part of Resident Representative Karachi

(RRK). The case for the waiver of demurrage was filed and rejected by the KPT

in February, 1998. The matter was taken up with Ministry of Communication and

deferment was allowed by making payment of Rs.20.200 million, out of the total

demurrage charges of Rs.73.194 million. Thus the material was released and WAPDA had

to suffer loss of Rs.20.200 million.

The matter was reported to RRK in April, 2004 and discussed on 28th July, 2004. It

transpired that the case was delayed due to expiry of license of Bonded Warehouses at

Multan & Faisalabad, agreement with Clearing Agent and non-availability of funds. It was

further replied that RRK was not responsible for the delay as the Warehouses were not

under its control. Reply was not tenable as it was the responsibility of RRK and NTDC to

update validity of the Licenses & Agreement. The draft para was issued to the Ministry in

December, 2004. It was replied in February, 2005 that inquiry committee had been

constituted in January, 2005 to investigate the matter and to fix responsibility. The para was

also discussed in DAC meeting on 19th March, 2005 wherein management stated that the

proceeding of inquiry committee constituted by Member (Finance) was in progress. The

DAC directed that inquiry be got completed by 15th April, 2005 and audit be intimated but

DAC’s directives were not complied with till finalization of the report.

8.6 Non-utilization of electrical equipment amounting to Rs.7.886 million

According to clause 6.1 of Computerized Store Inventory System Operating Procedures,

the dismantled material is required to be returned to store.

In PESCO as a result of augmentation of Grid Stations, electrical equipment valuing

Rs.7.886 million was removed. The dismantled material was not returned to the store for

utilization. The same was lying unutilized at various sites which resulted in blockage

of resources.

The matter was reported to the PESCO authorities in March, 2004 and discussed in

May, 2004. It was replied that the matter would be taken up at Authority level but no

progress in this regard was intimated. The draft para was issued to the Ministry in

August, 2004 and discussed in DAC meeting held on 19th March, 2005. Chief Executive

PESCO explained that para is related to NTDC. DAC directed that para be transferred

to NTDC and record be produced to Audit by 30th March, 2005. Record pertaining

to utilization of stores costing Rs.3.514 million only was produced by NTDC which

was verified but stores worth Rs.7.886 million had not been utilized till the finalization

of the report.

9. FAISALABAD ELECTRIC SUPPLY COMPANY

Faisalabad Electric Supply Company (FESCO) started its commercial operations as a

Public Limited Company in July, 1998. Its objectives are to purchase electricity from

NTDC and sell it to the consumers, to plan and execute new works and to maintain

distribution system & grid stations under its jurisdiction. All the properties, rights, assets,

obligations and liabilities of Faisalabad Area Electricity Board, were transferred to FESCO.


The electricity purchased during the year i.e. 2003-04 was invoiced by the NTDC at the

provisional rate of Rs.3.262/kWh (2003: 7052 million units @ Rs.3.206/kWh).

Adjustment, if any, is to be made on finalization of rate and reflected in the accounts for

the year in which the rate is finalized. As transfer price has not been determined by

NEPRA, the financial statements prepared on the basis of provisional transfer price

determined by WAPDA did not present the actual financial standing of the Company.


given below:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 20,032 22,253 24,959 27,813


Operating Profit/(Loss) (337) (694) (647) 48

Other Income 499 444 941 635


Net Profit/(Loss) (480) (788) (399) 182 Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

FESCO sustained financial losses for the last three years but it became a profitable

organization during the year 2003-04 despite the higher provisional tariff rate charged

by NTDC.

The main reasons for better financial performance of the company were as follows:

i. Decrease in distribution losses (11.17% in 2003 to 10.44% in 2004).

ii. Increase in sale revenue by 11.6%.

iii. Decrease in financial charges by 27.7% due to repayment of debts.

iv. Reversal of provision for doubtful debts of Rs.13.5 million in the current year

credited to “other income”.

Distribution Losses

Distribution losses of FESCO during the year 2003-04 were as under:

Units Received 7,644 million

Units Billed 6,846 million

Units Lost 798 million

Percentage losses during the year 10.4%

Target for the year 10.2%

Losses above the target 0.25%

Monetary loss (7644 x 0.2 / 100) x 3.73 57.02 million

The distribution losses decreased considerably from 11.17% in 2002-03 to 10.4 % in

2003-04 but remained behind the target, marginally. Further efforts should be made to

reduce the losses to bring it to the level of given target.

Receivables

Position of trade debts during the last four years was as under:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

657 2,015 2,178 2,476 Source: Progress report of the office of G.M. Operation & Balance Sheet for the year 2003-04

There were trade debts of Rs.2,015 million as on 30th June, 2002, which increased to

Rs.2,476 million on 30th June, 2004. This increase was mainly due to slow pace of

recovery from private sector and permanently disconnected consumers. During the year

2003-04 Rs.117 million i.e. 4.7% of the total trade debts was placed under the head

“Doubtful Trade Debts”.

10. GUJRANWALA ELECTRIC POWER

COMPANY

Gujranwala Electric Power Company (GEPCO) started its commercial operations as a


NTDC and to sell it to the consumers, to plan and execute new works and to maintain

distribution system & power grid stations under its jurisdiction. All the properties, rights,

assets, obligations and liabilities of Gujranwala Area Electricity Board, were transferred

to GEPCO.


The electricity purchased during the year 2003-04 was invoiced by the NTDC at the

provisional rate of Rs.3.034/kWh (2002-03: Rs.2.907/kWh). Adjustment, if any, is to be

made on finalization of rate and reflected in the accounts for the year in which the rate is

finalized. As transfer price of electricity from NTDC to DISCOs has not been determined

by NEPRA, the financial statements prepared on the basis of provisional transfer price

determined by WAPDA did not present true financial picture of the Company.


given below:

(Rs.in million)

2000-01 2001-02 2002-03

Restated

2003-04

Total Revenue 13,601 15,766 17,561 19,979

Total Operating Cost 13,727 16,210 18328 20,367

Operating Profit/(Loss) (126) (444) (767) (387)

Other Income 321 484 820 461


Net Profit/(Loss) (334) (358) (422) (313) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

There was persistent increase in loss during the financial year 2000-01 to 2002-03.

However, the Company has sustained a loss of Rs.313 million in the financial year 2003-04

which was Rs.109 million less than the previous year. The main reasons of decrease

in loss were as under:

i) Decrease in distribution losses from 13% in 2002-03 to 11.9% in 2003-04 (within

the given target).

ii) Electricity sales increased by 13.78% as compared to the previous year, due to

increase in number of consumers by 83,736 (1,959,849-1,876,113).

iii) Decrease in other operating cost by 4.59% as compared to previous year i.e.

Rs.2,371 million in 2002-03 & Rs.2,262 million in 2003-04

Distribution Losses

Distribution losses of GEPCO decreased during the year 2003-04 i.e 11.9% (within target

of 12.0%) as compared to 13.0% in the year 2002-03.

Receivables

Position of trade debts during the last four years was as under: (Rs.in million)

2000-01 2001-02 2002-03 2003-04

1,337 2,739 3,007 2858

Source: Progress report of the office of G.M. Operation & Balance Sheet for the year 2003-04

The receivables have marginally decreased during 2003-04. Out of the total amount of

Rs.2,858 million, Rs.241 million was placed under doubtful debts, which was 8.43% of

receivables. The main reason for receivables was slow pace recovery from private sector

& permanently disconnected consumers. Aggressive campaign and commitment is

required by the management to recover the Company receivables.


As per Chartered Accountant’s (M/s Ford Rhodes Sidat Hyder & Co.) report on the

accounts pertaining to the year 2003-04 no reliable record was available with the

Company from where the Auditors could verify/check the value of Company’s fixed

assets and capital work-in-progress.

11. HYDERABAD ELECTRIC SUPPLY COMPANY

Hyderabad Electric Supply Company (HESCO) started its commercial operations as a Public

Limited Company in July, 1998. Its objectives are to purchase electricity from NTDC and to

sell it to the consumers, to plan and execute new works and to maintain distribution system &

power grid stations under its jurisdiction. All the properties, rights, assets, obligations and

liabilities of Hyderabad Area Electricity Board were transferred to HESCO.



provisional rate of Rs.2.152/kWh (2003: Rs.2.271). Adjustment, if any, is to be made on

finalization of rate and reflected in the accounts for the year in which the rate is finalized.

As transfer price of electricity from NTDC to DISCOs has not been determined by

NEPRA, the financial statements prepared on the basis of provisional transfer price

determined by WAPDA did not present true affairs of the Company.


given below:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 15,223 15,409 15,091 16,272


Operating Profit/(Loss) 1,909 (2,183) (3,588) (607)


Financial Charges 2,824 650 647 698

Net Profit/(Loss) (763) (2,662) (4,150) (1,128) Source: Financial Statements of the Company for the financial years 2000-2001 to 2003-04

HESCO suffered losses during the last three years However, the net loss of the company

decreased by Rs.3,022 million during the year 2003-04 as compared to previous year.

The main reasons of this decrease in net loss were as under:

i) Increase in sale revenue by 7.82% due to increase in consumption.

ii) Decrease in other operating cost (Rs.5,950 million in 2002-03, Rs.3,965 million

in 2003-04)

Receivables

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

8,697 5,156 5,200 5,756 Source: Progress report of the office of G.M. Operation & Balance Sheet for the year 2003-04

Company’s receivables increased by Rs.556 million during the year 2003-04. Main

reasons for this increase of receivables were non-recovery from public, private sectors

and permanently disconnected consumers.

During the year 2003-04, the management placed Rs.5,215 million under the head

“doubtful debts”. It was 91% of the total receivables which was alarmingly high and

needs detailed investigation.


As per Chartered Accountant’s (M/s Taseer Hadi Khalid & Co.) report on the accounts

pertaining to the year 2003-04 the transfer of assets to the Company under Business

Transfer Agreement (BTA) as amended by Supplementary Business Transfer Agreement

and other related agreement is conditional to receipt of the lender’s consent in respect of

transfer of various loans to the Company and any applicable exemptions to provincial and

other taxes. The title of WAPDA in respect of certain assets is also conditional to

successful negotiations with relevant authorities. No reliable record was available with

the Company from which the Auditors could have verified/physically checked the value

of Company’s fixed assets and capital work-in-progress.

Distribution Losses

Distribution losses in HESCO during the year 2003-04 were as under:

Units Received 5,804.006 million

Units Billed 3,751.429 million

Units Lost 2,052.577 million


Target for the year 30%


Monetary loss (5,804 x 5.36 / 100) x 3.76 1.169.7 million

The distribution losses increased from 34.92% in 2002-03 to 35.36% in 2003-04

and were exceptionally high as compared to other sister companies. Special attention

of HESCO management is required to control technical and non-technical

distribution losses. .

11.2 Loss of revenue amounting to Rs.11.781 million due to incorrect application

of tariff

As per Schedule of Tariff, the commercial tariff A-2 is applicable to Telephone Exchanges

and Petrol Pumps.

In violation of the schedule of tariff, certain formations of HESCO applied industrial tariff

B-2 to the telephone exchanges and petrol pumps instead of Commercial tariff A-2 which

resulted in less billing of Rs.12.729 million as detailed below:

Sr. No. Name of Formation Less Billing (Rs)

1. XEN/R.O. Shikarpur 695,512

2. XEN/R.O. Shikarpur 49,008

3. XEN/R.O. Sukkur 219,033

4. XEN/R.O. Naushero Feroze 754,636

5. XEN/R.O. Tando Adam 825,323

6. XEN/R.O. Tando Adam 52,662

7. XEN/R.O. Tando Muhammad Khan 286,818

8. XEN/R.O. Kotri 1,060,457

9. XEN/R.O. Tando Allah Yar 102,015

10. XEN/R.O. Garikhata 8,631,728

11. XEN/R.O. Sanghar 51,592

Total 12,728,784

The executive authorities stated that R.Os concerned had been directed to change the

tariff and debit the difference to the consumers. The matter was reported to the Chief

Executive Officer, HESCO in August, 2003 but no progress towards recovery was

intimated. Draft para was issued to the Ministry in October, 2003. In March, 2005 it was

replied that tariff of one consumer had been changed and amount of Rs.84,892 was

debited. Original record in support of reply was not produced. The para was discussed in

DAC meeting held on 19th March, 2005 and management was directed to get the recovery

verified from Audit. Management could only produce record relating to recovery of

Rs.0.948 million but no satisfactory response was given for the balance amount of

Rs.11.781 million.

11.3 Loss of Rs.2.393 million due to non-recovery of sharing cost of grid-station

and transmission line

The Authority vide its circular letter dated 21st April, 2001 required that sharing cost of

grid station and transmission line @ of Rs.4.93 million per MW of the ultimate demand

of load of a housing society would be recovered from the housing society.

Contrary to this, HESCO did not recover the sharing cost from four housing societies

resulting in loss of Rs.2.393 million to the Company.

It was replied by the management that the amount in question would be recovered by the

concerned field formations before energizing/connecting these housing societies with the

HESCO system. The matter was also reported to the Chief Executive Officer, HESCO in

August, 2003 but audit was not informed about progress regarding recovery of the

outstanding dues. The Draft Para was sent to Principal Accounting Officer in October,

2003 and discussed in DAC meeting held on 19th March, 2005. The management replied

that an amount of Rs.1.836 million had been recovered while Rs.0.130 million is yet to

be recovered and the balance of Rs.0.427 million was not recoverable. The DAC directed

to get the record verified from Audit. Management remained un-responsive till the

finalization of this report and could not produce any record in support of its reply.

12. ISLAMABAD ELECTRIC SUPPLY COMPANY

Islamabad Electric Supply Company (IESCO) started its commercial operations as a Public

Limited Company in July, 1998. Its objectives are to purchase electricity from NTDC and

to sell it to the consumers, to plan and execute new works and to maintain distribution

system & power grid stations under its jurisdiction. All the properties, rights, assets,

obligations and liabilities of Islamabad Area Electricity Board, were transferred to IESCO.



provisional rate of Rs.3.49/kWh (same rate was charged during 2002-03). Adjustment,

if any, is to be made on finalization of rate and reflected in the accounts for the year

in which the rate is finalized. As transfer price of electricity from NTDC to DISCOs

has not been determined by NEPRA, the financial statements prepared on the basis

of provisional transfer price determined by WAPDA did not present true affairs

of the Company.


given below:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 17,614 18,837 20,627 23,012


OPERATING PROFIT/(LOSS) (111) (269) (51) (31)

Other Income 732 277 298 355


NET PROFIT/(LOSS) (302) (503) (313) (139) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04.

IESCO sustained net loss during the last three years. However, the net loss of the

company decreased from the year 2001-02 to 2003-04. The main reasons of this decrease

in loss were as under:

i) Increase in sale revenue by 11.6% due to increase in consumption.

ii) Decrease in distribution losses i.e. 10.95% in 2002-03 to 10.9% in 2003-04.

iii) Decrease in financial charges by Rs.97 million (from Rs.560 million in 2002-03

to Rs.463 million in 2003-04) due to repayment of loans.

iv) Increase in other income by 19%.

Receivables

Position of trade debts during four years was as under: (Rs.in million)

2000-01 2001-02 2002-03 2003-04


Out of the total amount of Rs.2,960 million, Rs.829 million were placed under doubtful

debts, which was 28% of receivables. It was very high and needs justification. Main reason

for receivables was non-recovery from private sector and permanently disconnected

consumers.

Distribution Losses

Distribution losses of IESCO during the year 2003-04 were as under:

Units Received 5,841 million

Units Billed 5,205 million

Units Lost 636 million




Monetary loss (5,841 x 0.9 / 100) x 3.73 Rs.196 million

The distribution losses marginally decreased from 10.95% in 2002-03 to 10.9% in 2003-

04 but remained above the target.

12.2 Expenditure of Rs.133.067 million on incomplete works started under

OECF/IBRD loans

The works under IBRD/OECF loans were to be completed with in the stipulated time as

given in work orders. Moreover, the installation charges were not to exceed 26% of

material cost as envisaged in Authority’s circular No. 905-22/GMO/BS/B-1

dated 21st June, 1989.

In IESCO, Islamabad an expenditure of Rs.133.067 million was incurred on IBRD/OECF

funded works during 1993-94 to 1997-98 but the same were appearing as works

in progress in the accounts for the year 2001-02. Due to non-completion of works,

investment of Rs.133.067 million had been blocked. This amount included Rs.45.079

million incurred on account of installation charges which was Rs.22.202 million more

than the prescribed limit of 26% of cost of material.

The matter was reported to management in August, 2003. It was replied that said works

were executed departmentally after close of IBRD/OECF loans and installation charges

exceeded the prescribed limit due to payment of consultancy charges. Documentary

evidence regarding completion of these works was not produced. The matter was brought

to the notice of Principal Accounting Officer (PAO) in December, 2003 followed by

reminders in January, April & July, 2004. It was also discussed in DAC meeting held on

19th March, 2005 wherein management promised to submit detailed reply alongwith

proof of energization/completion of works. The DAC directed to get the record alongwith

the completion records verified from Audit upto 30th March, 2005, but no detailed reply

and record was produced.

12.3 Blockage of Rs.2.409 million due to non-energization of 11 KV feeder and

loss of Rs.0.360 million due to theft of material

As per work order, 11 KV Soni Feeder valuing Rs2.409 million was to be constructed

and energized in 1995 to facilitate suburbs of Pindi Gheb. The feeder was completed in

1995 but could not be energized, as a result, not only the envisaged benefits were denied to

public but material worth Rs.0.360 million was also stolen from the site.

The matter was reported to the Company in December, 2003 and discussion was held

on 12th April, 2004 wherein enquiry report regarding stolen material was produced which

was not found satisfactory. The draft para was issued to the Ministry in June, 2004. It was

stated by the management that as per earlier inquiry, material valuing Rs.0.360 million was

actually stolen and the Sub Divisional Officer found involved in non-energizing the feeder,

was compulsorily retired. The DAC asked IESCO to certify actual energization and submit

self contained reply alongwith copy of findings of the committee apart from regularization of

loss from the competent authority. These directives have not been complied with by the

management.

12.4 Shortage of material valuing Rs.1.301 million

As per Audit Manual of WAPDA, Chapter 4, item 12.6.1, heavy shortages/excess should

be reported to Chief Engineer concerned for prompt investigation.

In Islamabad Electric Supply Company, shortage of material amounting to

Rs1.301 million was pointed out by the stock verifier during the year 2002-03 but no

progress towards investigation/recovery was intimated.

The matter was reported to the management in April, 2004. It was replied that a

Joint Examination Committee was being constituted which would sort out

exact shortage/surplus and further action would be taken in the light of report of

the Committee. No progress in this regard was intimated to audit. The draft para was

issued to the Ministry in July, 2004. It was discussed on 19th March, 2005 in DAC

meeting. The DAC directed the management that report of the Committee regarding

shortage and surplus of store be provided and amount recovered be got verified from

Audit in a week’s time. No record in this regard was produced to Audit till the

finalization of the report.

13. LAHORE ELECTRIC SUPPLY COMPANY

Lahore Electric Supply Company (LESCO) started its commercial operations as a Public



system & power grid stations under its jurisdiction. All the properties, rights, assets,

obligations and liabilities of Lahore Area Electricity Board, were transferred to LESCO.



provisional rate of Rs.3.379/kWh (2003: Rs.3.317/kWh). Adjustment, if any, is to be


finalized. As transfer price of electricity from NTDC to DISCOs, has not been

determined by NEPRA, the financial statements prepared on the basis of provisional

transfer price determined by WAPDA did not present true picture of the Company’s

financial performance.


given below:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 33,970 36,899 41,503 47,328


Operating Profit/(Loss) (831) (1,045) (1,226) 18

Other Income 977 681 1,164 931


Net Profit/(Loss) (880) (848) (793) 482


The Company was sustaining loss since the financial year 2000-01 but earned a net profit

of Rs.482 million during the financial year 2003-04. The main reasons for conversion of

loss into profit during the financial year were as under:

i) Increase in sale revenue by 39% due to increase in consumption.

ii) Decrease in financial charges by 54% due to repayment of loans.

iii) Decrease in distribution losses from 14.7% to 14.1%.

Receivables


2000-01 2001-02 2002-03 2003-04


The reason for these receivables is non-recovery from private sector and permanently

disconnected consumers.

Out of the total amount of Rs.5,896 million, Rs.1,688 million was placed under doubtful

debts. This provision was 28.62% of receivables which was very high.


As per Chartered Accountant’s (M/s Ford Rhodes Sidat Hyder & Co) report on the


Company from which the Auditors could verify/check the value of Company’s fixed

assets and capital work-in-progress.

Distribution Losses

Distribution losses of LESCO during the year 2003-04 were as under:







Monetary loss (12921.88 x 0.9 / 100) x 3.73 433.78 million

The distribution losses decreased from 14.7% in 2002-03 to 14.1 % in 2003-04 but

remained above the target.

13.2 Blockage of Rs.30.238 million due to non-completion of works

The works under IBRD/OECF loans were to be completed within the stipulated time as

given in work orders. LESCO incurred an expenditure of Rs.30.238 million on various

works, out of OECF and IBRD loans. These loan accounts were closed in June, 1998 and

1999 respectively but the works remained incomplete. No efforts were made to complete

the pending works during last five years and thus the investment of Rs.30.238 million

was blocked and the planned benefits were also delayed.

The matter was reported and discussed with LESCO management in April, 2004. It was

replied that the case would be probed into and reply submitted within one month. No

response was received; therefore, the draft para was issued to the Ministry in

July, 2004. It was replied by the management in February, 2005 that material booked

against these works had physically been installed at site and most of the works had been

completed. No documentary evidence in respect of completion of the works and

energization was produced. The DAC, in its meeting on 19th March, 2005, directed the

management that completion reports drawn may be submitted to Audit by 30th March,

2005 but the same were not provided till the finalization of this report.

13.3 Accumulation of arrears of Rs.25.120 million against temporary connections

due to violation of rules

According to conditions of Schedule of Tariff “E”, the LESCO was required to supply

power after obtaining security equal to the anticipated supply and other miscellaneous

charges for the period of temporary connections which is a guarantee against loss. Due to

non-adherence to the conditions of schedule of tariff, the consumers used energy and left

the sites without paying the energy charges of Rs.25.120 million.

The matter was reported to the LESCO management in June, 2004 and discussed in

August, 2004. No satisfactory reply was given. The draft para was issued to the Ministry in

November, 2004 and was discussed in DAC meeting held on 19th March, 2005. It was

replied by the management that arrears against temporary connections had been reduced to

Rs.20.499 million after some recovery but original record in support of this small

percentage of recovery was not produced. DAC directed the management to get the

available record verified from Audit by 30th March, 2005 and make efforts to recover

the outstanding dues.

13.4 Loss of Rs.16.34 million due to theft of WAPDA material and its utilization in

Private Housing Schemes

The committees constituted in November, 1998, December, 1999, May & September,

2000 by WAPDA to conduct physical inspection of the electrification works carried out

by private housing schemes, detected that Authority’s stolen material of Rs16.34 million

was installed in four private housing schemes. Action was required to be taken against

the responsible persons as well as to make good the loss. No steps were taken despite

lapse of 3-6 years.

The matter was reported and discussed with the management in April, 2004. It was

responded that legal action was underway. The draft para was issued to the Ministry in

July, 2004. The management stated that the material installed in these housing schemes

was not WAPDA property and the same was purchased by the housing schemes from the

market. In DAC meeting held on 19th March, 2005 the management was directed to

produce documentary evidence in support of reply by 30th March, 2005 which was not

produced till the finalization of the report.

13.5 Non-recovery of Rs.14.614 million from Cable TV Network Operators

As per Authority’s instructions circulated vide No. 38271-304 dated 13th November 2002

rent @ Rs.40/pole/month was required to be recovered from T.V. Network companies.

In LESCO Lahore, 3 major companies as well as other Cable T.V. network operators were

using WAPDA poles/structures without paying rent. As per Authority’s instructions, rent

@ Rs.40/pole/month was required to be recovered from these companies which was not

recovered. Thus the Company sustained a loss of Rs.15.961 million.

In preliminary reply it was stated that necessary recovery in respect of three major

Companies had been affected. In case of remaining operators, recovery position would be

intimated to Audit later on. Recovery of Rs.1.282 million had been verified leaving a

balance of Rs.14.679 million.

The matter was reported to the Company’s management in July and August, 2003.

Reminders were issued in April and July, 2004 but no reply was received.

A draft para was issued to the PAO and was discussed in DAC meeting held on

19th March, 2005. DAC directed the management to get the record of the recovered

amount verified from Audit by 30th March, 2005 and make efforts to recover the balance

amount. Further recovery of Rs.64,800 was verified by Audit, leaving balance of

Rs.14.614 million.

13.6 Loss of Rs.14.535 million due to shortage of electrical material

Para 94 of WAPDA Accounting Manual provides that loss due to shortage of

material/equipment is required to be recovered from the responsible.

In LESCO Lahore, a physical survey of HT/LT lines was conducted by management and

it was found that electrical material valuing Rs.17.66 million was missing from various

locations. The matter was required to be investigated to fix responsibility and make good

the loss in the light of item No.13 of minutes of review meeting held on 19th April, 2003

under the chairmanship of Chief Executive Officer LESCO.

The matter was reported and discussed with LESCO management in April, 2004. It was

replied that action would be taken within one month. No action was intimated to audit

thus draft para was issued to the Ministry in July, 2004. The management replied in

March, 2005 that disciplinary action has been taken against the officials concerned and

accountal of missing material may be verified. DAC on 19th March, 2005 directed the

management to get the record verified. Record relating to recovery of Rs.3.125 million

was produced and verified leaving a balance of Rs.14.535 million.

13.7 Non-return of sub-station equipment and other material valuing

Rs.8.550 million

As per Abridged Condition No. 14, on disconnection of electric supply to a consumer all

electrical equipment and apparatus is required to be removed and returned to store.

In LESCO Lahore, 606 SCARP Tube-wells were permanently disconnected/denotified

by the Irrigation and Power Department. Twenty-four tubewells out of 606 were

reconnected and handed over to private consumers. The electrical equipment of 161

tube-wells was returned to store. Equipment of the remaining 421 tube-wells valuing

Rs.21.05 million was not returned to store/accounted for.

The matter was reported to the management in July, 2003. It was replied that final reply

will be given after verification of record. Draft para was issued to the Ministry in

October, 2003. Return of material relating to 86 tube wells amounting to Rs.4.300 million

was verified by Audit in September, 2004. The para was discussed in DAC meeting held

on 19th March, 2005 wherein DAC directed the management to get the remaining record

verified from Audit by 30th March, 2005. Record relating to 164 (47 + 117) tubewells

valuing Rs.8.200 million (Rs.2.35 million + Rs.5.85 million) was verified by Audit

but the record for the remaining amount of Rs.8.550 million was not produced

for verification.

13.8 Loss of Rs.4.517 million on account of missing material


material/equipment is required to be recovered from the responsible.

In LESCO, twenty 100 KVA and four 200 KVA sub-stations were drawn from store in

April and May, 2003 to be installed at the sites from where the sub-stations were reported

missing. Accordingly an enquiry was conducted and recovery of Rs3.479 million was

imposed upon Mr. Zahid Munir, Line Superintendent out of which an amount of

Rs.32,832 was recovered. The remaining sub-stations valuing Rs.1.071 million were to

be returned to store besides disciplinary action against the other responsible persons but

the same was not done.

The matter was reported and discussed with Company’s management in March, 2004.

It was replied that action would be taken within 4 weeks. No response was received

uptill 30th June, 2004. The draft para was issued to the Ministry in July, 2004.

In February, 2005, it was replied that recovery to the tune of Rs.0.896 million

had been imposed on the officials but no record was produced in support of reply

and recovery. DAC in its meeting on 19th March, 2005 directed the management to

get the recovery verified from Audit, but management remained unresponsive till

the finalization of this report.

13.9 Non-accountal of electrical material valuing Rs.3.369 million

According to Abridged Condition No. 14, on disconnection of electric supply to

a consumer all electrical equipment and apparatus is required to be removed and

returned to store.

In LESCO, twenty-three industrial connections were permanently disconnected on non-

payment of electricity charges. The sub-stations installed at these locations were required

to be returned to store after removal from sites as per procedure mentioned above. There

was no evidence on record to show that these materials costing Rs.3.369 million were

returned to store.

The matter was reported and discussed with Company’s management in December, 2003.

It was promised that detailed reply would be given within a fortnight but no progress

was intimated upto 30th June, 2004. The draft para was issued to the Ministry in

July, 2004 and was also discussed in DAC meeting held on 19th March, 2005 wherein

management explained their view point. The DAC directed the management to get

the recovery verified from Audit by 30th March, 2005 but no record was produced

till finalization of the report.

13.10 Undue benefit of Rs.3.124 million to the consumer on account of capital cost

In the light of General Manager (CS) WAPDA’s circular No. 863-80/DD(R&CP)/55716

dated 25th August, 2000, all categories of connections having applied load above 2,500 KW

but not exceeding 5,000 KW will be given through independent feeders drawn directly from

Grid Stations and consumers having applied load less than 2,500 KW can be grouped on

exclusive industrial feeder subject to the condition that technical parameters remain within

permissible limits.

In LESCO, three industrial units namely; M/s Sheikh Spinning, M/s Hira (Sharif) and

M/s Millac Food with sanctioned loads of 2,400 KW, 2,626 KW & 1,500 KW,

respectively were running on 11 KV Hira Feeder.

In September, 2002 M/s Sheikh Spinning applied for extension of load from 2,400 KW to

3,200 KW. Technically, extension in load was not possible from the existing feeder. The

sanction was granted in February, 2003 with the condition that the extension would be

accommodated on existing 11 KV Hira Feeder after shifting 2,626 KW load of M/s Hira

(Sharif) on separate new feeder. The cost of new feeder i.e. Rs.3.124 million was to be

paid by M/s Sheikh Spinning. Despite disagreement of Director Technical, a modification

was issued stating that extension of load should be accommodated on existing feeder

temporarily till such time M/s Millac Food uses full sanctioned load. Resultantly

Rs.3.124 million was not recovered from M/s Sheikh Spinning.

The matter was reported to LESCO management in June, 2004 and discussed in

August, 2004. It was replied that a committee had been constituted to see the matter

regarding contents of audit para. The draft para was reported to the Ministry in October,

2004. In February, 2005, the management reiterated its above reply. The para was

discussed in DAC meeting held on 19th March, 2005 wherein management stated that

demand notice had been issued to the consumer. No recovery was, however, affected.

13.11 Non-recovery of Rs.2.566 million from Cable T.V. network operator

As per Authority’s instructions circulated vide No. 38271-304 dated 13th November, 2002

rent @ Rs.40/pole/month was required to be recovered from T.V. Network companies.

In LESCO, it was noticed that M/s World Call (Pvt.) extended cable television network.

For this extension 4,583 poles were used without any agreement and sanction.

No recovery from October, 2002 to November, 2003 to the extent of Rs.2.566 million

(14 months x Rs.40 x 4583) was made.

The matter was reported to management on 25th March, 2004 and discussed on

27th April, 2004. It was stated that a comprehensive reply would be given within a

fortnight. No reply was furnished upto 30th June, 2004. The draft para was issued to the

Ministry in July, 2004 and the same was discussed in DAC meeting held on 19th March,

2005 wherein management stated that inquiry was at its final stage. The DAC directed to

finalize the inquiry at the earliest under intimation to audit. Report of inquiry committee

was not made available to audit till finalization of this report.

13.12 Undue benefit of Rs.1.718 million to the consumer on account of capital cost

According to Re-Connection Order policy issued vide No. 1357-74/59026 dated

11th October, 1999 if a disconnected consumer applies for reconnection after expiry of 3

years form the date of disconnection, no credit of the cost of removed material will be

afforded even if he had paid the cost of material at the time of obtaining connection. In such

cases the capital cost will be recovered treating Re-Connection Order as new connection.

Moreover, the consumer who switch over to private generation has no right for any relaxation

after expiry of five years on resorting to WAPDA system.

In LESCO load of M/s Mian Textile Mill Ltd. was extended from 650 KW to 2,340 KW in

June, 1991 through an existing 11 KV Manga-II feeder. The consumer deposited Rs.2.371

million on account of “cost of rehabilitation of Manga-II feeder”. In January, 1997 the

connection was disconnected due to shifting of the consumer from WAPDA system to

private generation.

After lapse of 5 years, the consumer applied for reconnection on WAPDA system.

Reconnection was allowed in May, 2002 and consumer was asked to pay Rs1.718 million

as capital cost for construction of new 11 KV Ravi Imran feeder. Later on the connection

was energized in lieu of deposit made for rehabilitation of Manga-II feeder in 1991. Thus,

company sustained a loss of Rs.1.718 million on account of non-recovery of capital cost.

The matter was reported and discussed with the Authority in August 2004. It was replied

that capital cost was waived off under the incentive package for CPPs (Captive Power

Producers) consumers. Reply was not acceptable as the incentive package for CPPs

consumers was announced on 18th June, 2002 whereas the said consumer was given

benefit of non-payment of capital cost on 13th June, 2002. The draft para was issued

to the Ministry in October, 2004. It was discussed in DAC meeting held on

19th March, 2005 wherein management stated that case for ex-post facto sanction from

Member (Power) was in process. The DAC pended the para with direction to get the

same at the earliest. The management could not produce ex-post facto sanction from the

competent authority till the finalization of this report.

14. MULTAN ELECTRIC POWER COMPANY

Multan Electric Power Company (MEPCO) started its commercial operations as a Public



system and power grid stations under its jurisdiction. All the properties, rights, assets,

obligations and liabilities of Multan Area Electricity Board, were transferred to MEPCO.


The electricity purchased during the year i.e. 2003-04 was invoiced by the NTDC at the

provisional rate of Rs.2.891/kWh (2003: Rs.2.875/kWh). Adjustment, if any, is to be






given below:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 19,812 23,029 26,092 28,716


Operating Profit/(Loss) (214) (648) 64 96

Other Income 649 445 492 572


Net Profit/(Loss) (665) (904) (135) (19)


The Company sustained a loss of Rs.19 million in the financial year 2003-04. It was

Rs.135 million during the financial year 2002-03 which was Rs.116 million less than the

previous year. The main reasons of decrease in loss were as under:

i) Total revenue increased by 10% as compared to the previous year, due to increase

in consumption and decrease in distribution losses (17.5%:2003 to 16.96%:

2004).

ii) Other income increased by 16.26% from Rs.492 million in 2002-03 to

Rs.572 million in 2003-04 due to increase in revenue from sale of scrap, profit on

bank deposits and other miscellaneous income.

Distribution Losses

Distribution losses of MEPCO during the year 2003-04 were as under:







Monetary loss (8727.38 x 0.96 / 100) x 3.73 312.5 million

The distribution losses decreased considerably from 17.5% in 2002-03 to 16.96% in

2003-04 but remained above the target.

Receivables

Position of trade debts during the last four years was as under:

(Rs.in million)

2000-01 2001-02 2002-03 2003-04


The reason for these receivables was slow pace of recovery from private sector and

permanently disconnected consumers. Efforts should be made to expedite recovery.

During 2003-04 an amount of Rs.1,211 million was placed under doubtful debts i.e. 33%

of receivables which was very high.


As per Chartered Accountant’s (M/s Riaz Ahmed & Co.) report on the accounts

pertaining to the year 2003-04 stipulation of Business Transfer Agreement (BTA) and

Supplementary Business Transfer Agreement (SBTA) regarding transfer of legal title of

the operating fixed assets to the company have not been complied with and consequently

the company has not issued shares in favour of WAPDA against purchase consideration.

Further the loan agreements have not been finalized with WAPDA, Government of

Pakistan and direct lenders in accordance with clause 10-A of SBTA, which are pre-

requisites for the effectiveness of SBTA.

14.2 Loss of Rs.45.978 million due to undue favour extended to Industrial

Consumer

In the light of General Manager (CS) WAPDA circular No.6511-6742/GMCS/DG

(R&CP)/55716 dated 31st August, 1994, industrial consumer with load over 5,000 KW

will provide his own grid station.

In Multan Electric Power Company Ltd., M/s Hashir Group of Industries established

three textile units in Muzaffargarh. Two units were being fed from independent 11 KV

feeders while third one was operated through self power generation. In March, 2001 a

third independent feeder for third unit was constructed to cater for the sanctioned load of

3,500 KW but it could not be energized. In February, 2002 the consumer put the load of

Unit-III on Feeder Hashir-I un-authorizedly, due to which technical line losses increased

causing a loss of Rs0.689 million as assessed by MEPCO for March and April, 2002.

The combined load of these three independent connections exceeded 5,000 KW and as

per prevailing tariff, power was to be supplied at consumer’s premises through

independent grid station to be constructed by the consumer. The consumer was favoured

as neither grid station was constructed by the consumer nor its cost i.e. Rs.31.578 million

was recovered from him.

The consumer purchased Mohib Textile Mills in October, 2000. The said premises was

defaulter for Rs.13.711 million. In terms of commitment and affidavit dated 11th January,

2001 and clarification given vide General Manager (CS) letter dated 11th December, 2002

all outstanding dues were recoverable from M/s Hashir Group, but the consumer failed to

deposit the outstanding dues. In this way the consumer was unduly benefited by

not recovering Rs.45.978 million.

The matter was reported to executive authorities in June, 2003 but no satisfactory response

was received. The draft para was issued to the Ministry in October, 2003. It was discussed in

DAC meeting held on 19th March, 2005 wherein Chief Executive Officer briefed the position

in detail. The DAC directed that revised reply with record be provided to Audit for

verification. The record produced by management showed an adjustment note dated

10th March, 2005 amounting to only Rs.0.349 million. No progress towards recovery of rest

of the amount was intimated.

14.3 Loss of Rs.29.325 million due to purchase of defective energy meters

In the light of para 5 of Purchase Order No. 5370/C.E/(PAD)/DPE-1/T-2728/3074

dated 10th December, 2002, inspection of the material was to be carried out at the site

of Factory by CE (MI), WAPDA. In MEPCO Multan, a Purchase Order dated 10th

December, 2002 valuing Rs.195.500 million was placed on M/s ESCORTS Pakistan Ltd.,

Lahore for the supply of 200,000 single phase energy meters, out of which 30,000 meters

were allocated to the Regional Store MEPCO, Multan. At the time of installation these

energy meters were reportedly found defective. On receipt of complaints of defective meters

from various corners the same were got tested at M&T Division which declared them

defective. The Chief Executive Officer ordered to return the whole lot to the manufacturer for

its replacement which was not done by the Manager Material Management MEPCO, Multan.

Resultantly, the Authority sustained a loss of Rs.29.325 million.

The case was reported to the Authority in April, 2004. It was replied that the matter was

under investigation at Authority level and progress would be intimated to audit but no

reply was received. The draft para was issued to the Ministry in June, 2004. It was replied

in February, 2005 that only 4,221 meters had been received after rectification. The para

was also discussed in the DAC held on 19th March, 2005. In view of explanation given by

the management, the DAC directed that record be provided to Audit for verification

regarding number of meters received, found defective, repaired and in balance but no

record was produced till the finalization of this report.

14.4 Blockage of funds to the tune of Rs.23.653 million

Para 5(a) of memorandum issued by WAPDA vide No. C/78/13384-584 dated 17th & 19th

January, 1978 denotes that purchases should be made only of such items and in such

quantities as are required for a specific work. In no case should these purchases be made

for storing an item for indefinite period. In MEPCO, material valuing Rs.23.653 million

was lying un-utilized/ un-issued since 1995-2002. Non-utilization of material for such a

long period clearly indicated that the procurement of material was made without

assessing the actual requirements of field formations which resulted in blockage of

Company’s funds.

The matter was reported to the management in September, 2003. It was replied that

Manager Material Management had already been requested for early allocation of

material to the needy formations and it would be pursued on top priority. Reply was not

accepted in the absence of documentary proof.

The draft para was issued to the Ministry in June, 2004 and it was replied in

March, 2005 that material has been issued to field stores for its further consumption by

field formations. It was discussed in DAC meeting held on 19th March, 2005. In the light

of explanation given, the DAC directed that material used so far may be got verified

from audit and circular/letter be issued to other DISCOs and to its own formations

to inquire into their need. No progress in the utilization of the store was received till the


15. PESHAWAR ELECTRIC SUPPLY COMPANY

Peshawar Electric Supply Company (PESCO) started its commercial operations as a


NTDC and to sell it to the consumers, to plan and execute new works and to maintain

distribution system & power grid stations under its jurisdiction. All the properties, rights,

assets, obligations and liabilities of Peshawar Area Electricity Board including FATA

were transferred to PESCO. However, in July, 2002 WAPDA decided to transfer the

business of FATA circle to Tribal Area Electric Supply Company Limited (TESCO)

which became effective in July, 2003.


The electricity purchased during the year 2003-04 has been invoiced by the NTDC at

the provisional rate of Rs.2.680/kWh (2003: Rs.2.899/kWh). Adjustment, if any, is to

be made on finalization of rate and reflected in the accounts for the year in which the rate

is finalized. As transfer price for electricity from NTDC to DISCOs, has not been

determined by NEPRA the financial statements prepared on the basis of provisional

transfer price determined by WAPDA did not present true financial position of

the Company.

An overview of the financial statements of the Company is given below:

(Rs.in million)

* 2000-01 * 2001-02 # 2002-03 2003-04

Total Revenue 24,133 28,272 19,178 21,871


Operating Profit/(Loss) 1,267 (2,277) (956) (5,319)

Other Income 201 355 311 386


Net Profit/(Loss) (493) (2,574) (1,158) (5,451) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

* included revenue/cost relating to TESCO

# excluded revenue/cost relating to TESCO for comparison purpose

The Company sustained a loss of Rs.5,451 million in the year 2003-04 which was

Rs.4,293 million more than the previous year loss of Rs.1,158 million. The main reasons

of increase in loss were as under:

i) Provision of Rs.2,679 million for doubtful debts in profit & loss account due to

change in policy from arbitrary rate of gross billing to age analysis of trade debts.

ii) Increase in other operating cost by Rs.1,511 million due to change in policy

regarding employees’ retirement benefits and increase in depreciation.

Distribution Losses

Distribution losses of PESCO during the year 2003-04 were as under:







Monetary loss (7741.84 x 3.81 / 100) x 3.73 Rs.1,100 million

Distribution losses slightly decreased from 32.03% in 2002-03 to 31.41% in 2003-04 but

remained above the target.

Receivables

Position of energy debts during the last four years was as under: (Rs.in million)

* 2000-01 * 2001-02 # 2002-03 # 2003-04


* include receivables relating to FATA

# exclude receivables relating to TESCO for comparison

Main reason for these receivables was non-recovery from private & public sector and

permanently disconnected consumers.

Out of total amount of Rs.8,420 million, (excluding amount of FATA) Rs.3,508 million

were placed under doubtful debts i.e. 41.66% of receivables which was very high

percentage and needs justification.


As per Chartered Accountant’s (M/s M. Yousaf Adil Saleem & Co.) report on the


Company from which the Auditors could have verified/physically checked the value of

Company’s fixed assets and capital work-in-progress.

15.2 Non-completion of works-in-progress amounting to Rs.2385.282 million

The works under IBRD/OECF loans were to be completed within the stipulated time as

given in work orders. In PESCO Peshawar, Works-In-Progress (WIP) amounting to

Rs.4,675.282 million were appearing in the Financial Statements. The amount had

accumulated over the years since 1990-91 which also included abandoned works carried

under Tameer-e-Wattan and People Works Programmes. In the preliminary reply it was

stated that there were genuine reasons like non-availability of material, ban on Job

Transfer Note (where material of one work had already been utilized on other works),

termination of loans and other departmental difficulties.

The matter was reported to management in August, 2003. It was replied that committee

would be constituted to analyse the Works in Progress with reference to material drawn and

installed but no report in this regard was provided. On the issuance of Draft Para in

November, 2003 the record relating to capitalization of works amounting to Rs.2,290 million

was produced and verified by audit leaving a balance of Rs.2,385.282 million. The para was

discussed in the DAC meeting held on 19th March, 2005. The DAC directed the

management to produce documentary evidence regarding completion of remaining works, if

any, but no reply was received.

15.3 Recurring loss of Rs.251.137 million due to theft of electricity

Authority has devised a procedure for billing/regularization under code 888 for

unregistered consumers using direct hooks.

In PESCO, an amount of Rs.251.137 million was billed to such consumers in December,

2002 but neither recovery was effected nor the connections regularized, resulting in

recurring loss to the Company.

The issue was reported and discussed with management in August, 2003. It was stated

that information regarding number of consumers, FIRs lodged and recovery made on this

account was awaited from concerned circle offices. It was further replied in February,

2004 that the instructions and procedure were not applicable in Tribal Areas. However,

after allocating account numbers, the consumers were charged for recovery. No

information was given to audit about the recovery despite issuance of reminders in April

and July, 2004. The para was discussed in DAC meeting held on 19th March, 2005

wherein Chief Executive Officer explained the position in detail. Discussions in the DAC

meeting remained inconclusive and the Committee referred the matter to PAC for further

deliberation.

15.4 Non-disposal of material valuing Rs.12.12 million

In the light of Chapter-1 (Para 1.1 to 1.4.2) of WAPDA Purchase and Disposal Procedure

unserviceable material is required to be auctioned. In PESCO unserviceable

material/equipment worth Rs12.12 million was lying in various formations which was

required to be auctioned but the same was not done. Non-disposal of material resulted

into blockage of funds.

The matter was reported to PESCO in March, 2004. It was replied that the material worth

Rs1.299 million has been disposed off, record will be produced for verification and the

remaining material will be auctioned under intimation to audit. No progress in this regard

was intimated. The draft para was issued to Principal Accounting Officer in February,

2005. It was discussed in the DAC meeting held on 19th March, 2005. DAC directed the

management to submit a detailed reply and get it verified from Audit by 30th March, 2005

but the management did not respond.

15.5 Non-receipt of security deposits and cost of equipment due to

un-authorised extension in load - Rs.11.166 million

Under the provisions of Abridged Condition 6 for Connections, in case of any addition

or alteration made in the existing installation without approval of the competent authority, the

supply of such consumer was required to be disconnected without any prior notice.

In PESCO, 108 industries were consuming electricity load beyond sanctioned limit as

established in billing record, M&T reports/Surveillance reports in violation of the instructions

mentioned above. The field formations neither disconnected nor followed the proper

procedure for providing load extensions as a result of which the Company was deprived of

Rs.15.396 million on account of security deposit and cost of equipment that would have been

charged to consumers if the additional equipment was installed.

The matter was reported and discussed with management in August, 2003, it was stated

that notices would be issued to the consumers for regularization of illegal extension of

loads and the amount recovered would be got verified. No further response from the

management was received. The issue was reported to Principal Accounting Officer in

November, 2003. It was replied in February, 2004 that notices have been issued to the

consumers. The para was discussed in the DAC meeting held on 19th March, 2005 and

the management was asked to provide record for verification. Recovery of Rs.4.230

million was verified leaving a balance of Rs.11.166 million.

15.6 Less recovery of Rs.3.687 million from the cable network operators

As per Authority’s instructions circulated vide No. 38271-304 dated 13th November,

2002 rent @ Rs.40/pole/month was required to be recovered from T.V. Network

companies. In PESCO Peshawar, Surveillance Directorate pointed out that in a

sub-division, 6 Cable Network Companies had been charged pole rent for 491 poles

as per their declaration while 2,022 poles were actually in their use. Thus Rs.3.959 million

was less recovered.

The matter was reported and discussed with authorities in August, 2003. It was stated that

the field formations had been instructed to make the complete survey and recover the

amount, but no progress was made in this regard. Draft para was issued to the Ministry in

October, 2003. It was replied in January, 2004 that the recovery has been affected but

recoveries of Rs.0.272 million could only be verified. The para was discussed in DAC

meeting held on 19th March, 2005 wherein the management replied that a committee was

constituted to reconcile the figures of poles. DAC directed to supply a copy of Inquiry

Committee’s re-conciliation report regarding number of poles and get the original record

verified upto 30th March, 2005. The management failed to produce the original record till

the finalization of Report.

15.7 Non-existence of 11 KV feeder causing loss of Rs.2.549 million

After completion of construction work in accordance with the work order, the feeder was to

be handed over to Operation Wing for energization. In PESCO, bifurcation of 11 KV

Ismailia Feeder, with length of 6.77 KM was carried out at a cost of Rs.1.605 million. The

completion report was submitted in June, 1998 but it was not handed over to Operation

Wing. Audit could not find existence of conductor and other allied material at site

on physical verification. As such the expenditure of Rs.1.605 million shown to be incurred

on the construction of feeder was fictitious. Thus the Company was put to loss of

Rs.2.549 million (capital cost Rs.1.605 million + Rs.0.944 million envisaged benefits of

reduction in energy loss).

The matter was brought to the notice of management in August, 2003 followed by discussion

and it was decided that an enquiry committee would be constituted to investigate the matter

but no report was received. Ultimately the matter was referred to the Ministry in

November, 2003. It was discussed in DAC meeting held on 19th March, 2005. DAC directed

that a copy of inquiry report alongwith order of the competent authority and recovery

position/record be provided to Audit for verification by 30th March, 2005 but no response

was received.

15.8 Loss of Rs.1.26 million due to shortage of material


material/equipment is required to be recovered from the responsibles.

In PESCO, material valuing Rs.1.26 million was found short in various formations. The

shortage was required to be made good from the personnel held responsible but the same was

not done resulting into loss.

The matter was reported to the management in March and April, 2004 and discussed in

May, 2004 but no satisfactory reply was given. The draft para was issued to the Ministry in

September, 2004. It was replied that in one case matter would be investigated and in the

other, recovery position would be intimated to audit. DAC directed the management on 19th

March, 2005 to supply the findings of Enquiry Committee and get the recovery verified from

audit upto 30th March, 2005 but no record was produced.

16. QUETTA ELECTRIC SUPPLY COMPANY

Quetta Electric Supply Company (QESCO) started its commercial operations as a Public

Limited Company on July, 1998. Its objectives are to purchase electricity from NTDC

and to sell it to the consumers, to plan and execute new works and to maintain

distribution system & power grid stations under its jurisdiction. In addition, the Company

generates electricity through small thermal plants. All the properties, rights, assets,

obligations and liabilities of Quetta Area Electricity Board, were transferred to QESCO.


The Company purchases electricity from NTDC and Iran Power Generation and

Transmission Management Organization (IPGTMO). The rate applied for electricity

purchased during the year from IPGTMO was US $ 0.03 per unit and was valid for three

years. However, the purchase from NTDC during the year 2003-04 has been invoiced at

the provisional rate of Rs.1.68/kWh (2003: Rs.2.116/kWh). Adjustment is to be made on

finalization of rate and will be reflected in the accounts for the year in which the rate is




An overview of the financial statements of the Company is given below: (Rs.in million)

2000-01 2001-02 2002-03 2003-04

Total Revenue 5,461 6,885 8,760 10,193


OPERATING PROFIT/(LOSS) (468) (1,429) (2,908) (1,004)

Other Income 157 286 296 121


NET PROFIT/(LOSS) (1,313) (1,388) (2,847) (1,114) Source: Financial Statements of the Company for the financial years 2000-01 to 2003-04

The net loss increased during the financial years from 2000-01 to 2002-03. However, the

Company sustained net loss of Rs.1,114 million in 2003-04 which was Rs.1,733 million

lesser than that of previous year. The main reasons of decrease in loss were as under:

i) Decrease in distribution losses from 18.1% in 2002-03 to 16% in 2003-04.

ii) Total revenue increased by 16.35% as compared to previous year due to increase

in power consumption.

iii) Cost of electricity decreased due to lesser tariff rate applied by NTDC.

iv) Due to increased purchase of electricity from IPGTMO Iran, self generation was

decreased from 65 million unit in 2002-03 to only 0.4 million units during

2003-04. This resulted in saving of Rs.646 million.

Distribution Losses

Distribution losses of QESCO during the year 2003-04 were as under:

Units Received 3885.33 million

Units Billed 3262.83 million

Units Lost 922.50 million

Actual losses during the year 16%


Losses above the target Nil

Distribution losses of QESCO decreased during the year 2003-04 i.e 16.0% as compared

to 18.1% in the year 2002-03.

Receivables


2000-01 2001-02 2002-03 2003-04


Reasons for increase in the receivables was failure of Company to recover its dues from

public/private sectors and permanently disconnected consumers Against recoverables of

Rs.3,114 million provision for doubtful debts of Rs.1,372 million was made which is

very high i.e. 44% of the receivables and needs justification.


As per Chartered Accountant’s (M/s Taseer Hadi Khalid & Co.) report on the accounts

pertaining to the year 2003-04 no reliable record was available with the Company from

where the Auditors could verify/check the value of Company’s fixed assets and capital

work-in-progress.

16.2 Loss of Rs.22.323 million due to incorrect calculation of MDI reading

In QESCO two connections of B-2 category were charged less number of units due to

incorrect calculation of MDI reading, which resulted in a loss of Rs.22.323 million.

The matter was brought to the notice of management in January, 2004 and discussed in

May, 2004. It was informed that a committee had been constituted to check the MDI

meters. Findings of the committee were not provided to audit. The draft para was issued

to the Ministry in July, 2004. DAC, in its meeting held on 19th March, 2005, directed

the QESCO management to certify that reading formula was correct and also reconcile

the calculations with audit by 30th March, 2005. No response was received till the


16.3 Credit of Rs.19.078 million without adjusting the units

As laid down in CP-52 the adjustment of energy bills comprises of credit/debit of amount

and corresponding units. Accounts record of Chief Executive Officer, QESCO, Quetta for

the period July, 2002 to June, 2003 revealed that heavy amount of Rs.19.078 million, as

mentioned below, had been credited to the consumer accounts without adjusting units in

violation of the laid down commercial procedure.

Sr.

No.

Name of Circle Amount adjusted without

involving units

(Rs.in million)

1. Central Circle 6.090

2. Northern Circle 9.532

3 Southern Circle 3.456

Total 19.078

The matter was brought to the notice of management in April, 2004 and discussed in a

meeting held in June, 2004. It was promised that the latest position of the case would be

intimated, but no information was provided. The draft para was issued to the Ministry in

August, 2004. It was replied in February, 2005 that action was taken according to the

Authority’s instructions but no documentary evidence was provided in support of the

contention. The para was discussed in DAC meeting held on 19th March, 2005 wherein

Member (Power) explained the position in detail. The DAC directed the management that

a revised write up with relevant record be provided to Audit by 30th March, 2005, but the

directives were not complied with.

16.4 Blockage of funds to the tune of Rs.8.171 million due to non utilization

of material

Para 5(a) of memorandum issued by WAPDA vide No. C/78/13384-584 dated 17th & 19th

January, 1978 denotes that purchases should be made only of such items and in such

quantities as are required for a specific work. In no case should these purchases be made

for storing an item for indefinite period. Material valuing Rs.8.171 million was lying in

the regional store since 2002 resulting in blockage of funds in QESCO.

The matter was brought to the notice of management in April, 2004 and was discussed in

a meeting on 1st June, 2004. It was replied that latest status would be intimated within a

weeks time, but no reply was received and the draft para was issued to the Ministry in

July, 2004. The management replied in February, 2005 that some of the material had

been utilized and for the remaining material, other DISCOs had been asked to give their

requirements. The matter was discussed in DAC meeting held on 19th March, 2005

wherein Chief Executive Officer explained that material was still useable. The DAC

directed that the record regarding material issued and utilized be provided to Audit and

balance material be issued to other DISCOs. No progress in this regard was received till

the finalization of this report.

16.5 Non-removal of dismantled material worth Rs.2.97 million

As provided in Abridged Condition No. 14, the material of defaulting consumers, is required

to be removed as a result of execution of EROs for returning to store. In QESCO, electricity

of consumers was permanently disconnected but the electrical material valuing

Rs.2.97 million was not removed from their premises which led to theft of the material as

detailed below:

The matter was brought to the notice of the management in December, 2003 and was

discussed in May, 2004. It was replied that the formations concerned had been directed to

furnish a detailed/comprehensive reply within a week. When no response was received

from the management, draft para was issued to the Ministry in July, 2004. It was replied

in February, 2005 that due to non-payment of electricity bills, DCOs/EROs were issued

but no material was available on site as the people had migrated to other places due to

drought during previous years. Reply was not acceptable. Had the equipment been

removed in time, the loss would have been avoided. DAC, in its meeting held on

19th March, 2005, directed that report of Inquiry Committee already constituted for the

purpose be provided to Audit for verification by 30th March, 2005. DAC directives were

not complied with.

Sr.

No.

Advance

Para No.

Name of formation Material Quantity

No. of

Consumers

Amount

(Rs)

1. 18 &

18a,&

21(395)

i) XEN (E) Sibi

ii) XEN (E) Loralai

iii) SDO (E) Sibi

i) Single Phase meter

ii) P.V.C

iii) Meter Board

-do-

50 KVA Transformer

1 No.

20 Meters

1 No.

-do-

1 No.

588 Nos

107 Nos.

1 No.

Rs1,200/-

Rs400/-

Rs100/-

1700x588=0.999 (M)

1700x107=0.182 (M)

0.006x1 =0.006 (M)

2. 3(385) XEN (E) Sibi i) 25 KVA Transformer

ii) 50 KVA Transformer

iii) 36 Meters

29 Nos.

7 Nos.

36 Nos.

29 Nos.

7 Nos.

36 Nos.

42000 x29=1.218(M)

62000x7 = 0.434(M)

3650x36 = 0.131(M)

Total 2.97 (Million)

COMMENTS ON INTERNAL CONTROLS

Internal controls are all measures taken by an organization for the purpose of (1)

protecting its resources against waste, fraud, or inefficient use; (2) ensuring the reliability

of accounting data; (3) securing compliance with management’s policies; and (4)

evaluating the performance of all employees, managers and departments within the

organization.

Every large organization has an internal auditing system. The objectives of the internal

auditors are to monitor and improve the system of internal control. Internal auditors test

and evaluate both accounting and administrative controls in all areas of the organization

and prepare reports for the top management based on their findings and

recommendations.

WAPDA is responsible for the unified and coordinated development of water and power

resources of Pakistan and is one of the largest users of public funds. Its operations call for

a high degree of financial discipline to ensure regularity in its transactions. To safe-guard

the misuse of funds and eliminate the chances of financial irregularities, WAPDA has

introduced an internal control system as discussed below. Following internal checks are

being exercised by WAPDA/Corporate entities.

i) Policies/Plans

Formulation of all policies, rules and planning is being made at Authority level

for implementation in WAPDA and its corporate entities.

ii) Management Information System

Management Information System (MIS) exists in all the formations. However,

in certain areas the same is not adequate.

iii) Security and Maintenance of Assets

A system of custody, supervision & maintenance as well as security of assets is

available. An operating procedure for computerized inventory control system has

been implemented. Despite existence of an elaborate inventory and security

system a number of theft cases were noticed and had been reported.

iv) Monitoring and Surveillance

Monitoring and Surveillance teams at Authority/Company as well as circle level

are working for detecting technical and administrative faults/lapses resulting into

less generation of revenue. The performance of monitoring & surveillance teams

can play a vital role in enhancing the revenue.

WAPDA INTERNAL AUDIT

WAPDA & its corporate companies have their own set up of Internal Audit which

consists of a Chief Auditor assisted by five Deputy Chief Auditors at Head Quarter, eight

Regional Deputy Chief Auditors, thirty Senior Audit Officers and 40 Audit Officers.

Number of Audit Parties/Local Audit Parties exceeds 180. Following internal audit

system has been implemented by WAPDA/Corporate entities.

i) Divisional Accountant is the primary auditor who exercises pre-audit of 100%

financial transactions.

ii) The bill/invoice passed by the Divisional Accountant is further pre-audited by the

higher officers i.e. Budget & Accounts Officer (B&AO)/ Sr. B&AO/Director

Accounts etc. After scrutiny a claim becomes eligible for payment.

iii) Internal Audit is responsible to carry out an independent 100% review

of Consumer Accounts (100% billing except being charged under A-I which are

test audited) being maintained in XEN/RO to certify the correctness of electricity

billing. Remaining accounts of the formations are test audited.

iv) The projects at which Government Concurrent Audit Offices exist the accounts of

the same are not checked by the Internal Audit Wing of WAPDA.

The objective of Internal Controls is to obviate chances of financial irregularities.

Despite the presence of a large qualified set up of Account and Internal Audit in

WAPDA, following irregularities of common occurrence have been pointed out in this

Audit Report.

i) In WAPDA, system for custody, supervision, maintenance and security of assets

exists. In spite of this, cases of theft, misappropriation and mismanagement of

assets have been reported. It shows either there is some flaw in the existing

internal control system or system is not being implemented in an efficient manner

to protect and maintain the WAPDA assets.

ii) Contract management is yet another area which needs attention of the

management. Due to lack of proper implementation of financial controls,

important clauses of agreements are not enforced leading to financial loss to

the organization.

iii) Unsatisfactory financial performance of the companies, non-recovery of huge

amount of receivables from private consumers and violation of financial rules are

results of weak internal controls and lack of efficient financial management.

iv) The repetition of such type of irregularities can only be stopped if Internal Control

mechanism, already existing in WAPDA, is further strengthened and made more

effective.

Annexure-A

MESSENGER/UMS

,. ~.1(3)/2015-PAC-ll 24th

POINTS OF THE MEETING OF COMMITTEE-II loth PERTAINING TO M/O WATER

REPORTS/SPECIAL

loth FAarch,

M/o

M/o

99) PW

(INHAMUL S.O/Secretary

along

(CA&E), 3rd Secretary/Director (BI),

? -. - i . .

'.

S.O/Secretary

MOST IMMEDIATE BY SPECIAL

NATIONAL ASSEMBLY SECRETARIAT (Public Accounts Committee Wing)

Islamabad, the April, 2015

Subject: - ACTIONABLE ARISING OUT FROM DISCUSSION SUB-OF PAC HELD ON MARCH. 2015.

AND POWER ON THE APPROPRIATION ACCOUNTS, AUDIT AUDIT REPORTS FOR THE YEAR 2003-04.

Please find enclosed herewith Actionable Points arising out from discussion of the

Meeting of the Sub-Committee-ll of the Public Accounts Committee meeting held on

2015, in Committee Room No. 2, Parliament House, Islamabad pertaining to the Water and

Power for information and further necessary action please.

2. Kindly acknowledge the receipt.

The Secretary, Water and Power,

Government of Pakistan, Islamabad.

HAQKHAN) Sub-Committee-ll

Ph:9201781

2.

Copy with a copy of subiect Actionable Points is forwarded for information and necessary action to:-

1. The Deputy Auditor General (FAO), Audit House, Constitution Avenue, Islamabad. The Director General Audit (FG), Benevolent Fund Building, near Zero Point, Islamabad. The Director General Audit WAPDA, Sunny View Estate, Kashmir Road, Lahore.

4. The Director General Audit Floor, Audit complex Building, Edward Road, Lahore. 5. The Joint Finance Division, Islamabad. 6. The Section Officer (PAC imp), N.A. Secretariat, Islamabad.

.., . . . , .. . , . i .

I. . . . . . (INHAMUL HAQ KHAN)

Sub-Committee-ll

Draft Actionable Points

Q National Assemblv Secretariat

JPAC WING) -- C

t-

Actionable points arising from the discussion of meeting of PAC's Sub-Committee-ll held on loth March,

2015 while examining Appropriation Accounts/Audit Reports/Special Audit Reports for the year 2003-04

of Ministry of Water and Power are given below:

Audi t Report 2003-04 MINISTRY OF WATER AND POWER

DIRECTOR GENERAL AUDIT (FG), ISLAMABAD.

1. PARA-19.1(PAGE 421) AR 2003-04

i' 1 IRREGULAR EXPENDITURE ON ACCOUNT OF HOUSE RENT CEILING PAID TO OFFICERS/STAFF -RS 5.120 MILLION(Rs.3.781 million)

Audit pointed out that according t o part V of Pakistan Allocation Rules 1993, Government may

hire a private hoqse and allot it to a Government servant. The rental ceiling is paid to the owner of the

hired house. But IRSA, instead of requisitioning private houses and allotting those.ty.its officers/offidals,

paid an amount of Rs.5,123,040 as house rent ceiling to i t s officers/officials along with their salary without

concurrence of Finance Division and Housing and Works Division.

PA0 Informed the committee that IRSA was established under lndus River System Authority Act

1992 and the decision of the Authority t o pay the House acquisition ceiling as per entitlement of

officer/official as a part of monthly salary was justified under Section 12(2) read with section 22(1) of the

said Act.

ii) WRA-19.3(PAGE 422-423) AR 2003-04

IRSA-RS.2.020 MILLION

Audit briefed the Committee about the para and stated that according to Rule 12 of Rules of

Business, no Division can issue any orders which will directly or indirectly affect the finances of the

Federation without consultation with the Finance Division. But in contravention uf.t6is rule, 1 ~ ~ ~ ' a l l o h e d

to i t s employees, including members, medical allowance, conveyance allowance and IRSA allowance at

@20%, 15% and 20% of running basic pay respectively. Furthermore, in terms of Rule 4 of the lndus River

System Authority (Chairman and Members Conditions of Service) Rules, 2000 framed under Section 2 1 of

AUDIT REPORT ON THE ACCOUNTS OF WATER … AR 2003-2004 with...WATER AND POWER DEVELOPMENT AUTHORITY...

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