ISLAMABAD (November 29 2002) : In the first quarter of 2002-03 except PIA all the public sector organisations remained in loss. The loss of the Pakistan Railways was Rs 840.75 million against its target of Rs 1.25 billion. Pakistan Steel had the net loss during the quarter stood at Rs 20 million as against projected net loss of Rs 56 million.
PIA showed a profit of Rs 853 million, while net loss before tax of KESC was Rs 3.393 billion against target of Rs 3.247 billion. During the first quarter actual line losses were 25.6 percent.
In the Pakistan Railways the main shortfall ie Rs 99.545 million in revenue is in Military Traffic, which has been handled less than the estimates. The Marketing Directorate has geared up its activities and made up the previous deficiency in the 2nd quarter. It is hoped that the PR will achieve the revenue targets during 2002-03.
Quarterly Review (July-September) FY 2002-03
Main Assumptions Vs Actual: Water and Power Development Authority (Wapda) revised its financial projections after incorporating structural tariff increase of 6.6 percent with effect from August 13, 2002. During the first quarter, the actual energy generation was 18204 Gwh as against projected 17479 Gwh, which means increase of 4.1 percent.
The generation mix improved with increased share of hydel generation bringing down the share of thermal to 49.9 percent from 53 percent. The hydel generation increased by 898 Gwh than target of 8221 Gwh. Wapda thermal Generation went down by 242 Gwh and IPPs purchases went up a little by 69 Gwh against the target of 4557 and 4681 Gwh respectively.
Main Operational and Financial Targets Vs Actual: During the first quarter actual line losses were 25.6 percent. It is appreciable that all Wapda companies remained within their respective target of line losses except two Discos – Pesco and Hesco; geopolitical constraints were the main hindrance in the reduction of line losses in these areas.
At the end of the first quarter receivables of Wapda rose to 23.7 percent of billing as against projected level of 19.5 percent, mainly due to surging of public sector receivables, which increased to 48.9 percent against target of 36.9 percent.
The public sector receivables are increasing constantly. Fata the major defaulter in public sector stood at Rs 19.146 billion at the end of the first quarter against Rs 15.425 billion as on June 30, 2002 thus up by Rs 3.721 billion. This shows that Fata has not been clearing its current bills and past arrears as well. It is worth mentioning here that the accumulation of receivables at such a pace may cause serious liquidity problems in future and oversight of this area may show disastrous results at the end of current financial year.
KESC did not pay its current bills during the first quarter while their past dues stood at Rs 5.365 billion. Moreover, (in addition to the above), Wapda also provided subsidy of Rs 384 million to Agriculture Tube-wells in Balochistan and Rs 935 million to AJ&K.
Arrears of gas and IPPs supplies were reduced by Rs 8.182 billion by diverting cash flows during the first quarter to bring them down to the normal level. Non payment of dues by the public sector during the first quarter coupled with carried over financing gap of Rs 8.824 billion for the FY 2001-02 caused maximum strain on Wapda finances. As against Rs 11.5 billion financing gap at the end of the fiscal year 2002 to be determined by the GoP no amount could be arranged to meet the gap.
Total cash collection: Total cash collection was Rs 52.116 billion exclusive of GST less by Rs 6.413 billion than the target of Rs 58.529 billion. The decrease in collection was mainly attributed to drop in operating revenues and less recovery of receivables from the public sector. Despite increase in units sold by 1.8 percent than the level set for first quarter, the operating revenue decreased by Rs 987 million than the projection of Rs 55.314 billion. Change in the consumer mix with more sales to subsidised categories of consumes caused less operating revenue.
The actual receipts of Rs 2.184 billion on account of non-operating revenue is above the target of Rs 716 million. The receivables have increased by Rs 8.195 million as compared with the projected level of Rs 39.909 billion mainly due to Public sector default, which hampered liquidity position significantly as is evident from the following table:
Total cash outflows: The actual total cash outflow for the first quarter was Rs 42.05 billion less by Rs 5.498 billion mainly due to deferment of hydel profit payment to NWFP and Debt service to the GOP. Effective control on O&M expenses resulted in reduced expenditure by Rs 677 million during the first quarter of current financial year.
Automatic Tariff Adjustment (ATA): Additional fuel cost for generation of electricity from Wapda and IPPs during the current financial year ie FY 2002-03 is worked out as Rs 5.451 million due to 13 percent increase in fuel prices ie from Rs 12,642 per tonne to Rs 14,262 per tonne, during the first quarter.
Explanatory note to the FIP of KESC and its Performance during the first quarter (July-September, 2002): The FIP of KESC was prepared in the background of the GoP plan to privatise it by September 2002 to a party ready to invest around US$ 400 million for improvement of the network and convert KESC into a self-sustaining profitable organisation.
All necessary actions were completed to privatise it but the objective could not be achieved for many reasons mainly due to absence of interested parties in the post September 11, 2001 scenario. KESC is still on the privatisation list and efforts will continue for its sale.
However, without waiting further for successful outcome of the privatisation process and assuming that KESC will continue to remain in public sector, it was decided in September 2002 to evolve a strategy to invest the required funds and turnaround KESC into a profitable organisation, like many other public sector entities, in the next three years.
Salient Features of FIP: 2. Spread over a period from 2002-03 to 2005-06, the FIP envisages capital investment of Rs 13.349 billion to be entirely financed by the GoP through budget funding. The funds will be spent to restore the de-rated generation capacity, reduction of T&D losses by controlling theft and improvement of transmission and distribution system.
Expected Results: 3. It was estimated that the cash shortfall for the year 2002-03 will be Rs 16.7 billion if the FIP were not implemented. With the implementation of FIP, the cash shortfall will reduce to Rs 12.403 billion during the current year and will reduce to Rs 7.929 billion, Rs 1.293 billion and a cash surplus of Rs 1.68 billion in the next three years up to 2005-06. Other targets set for the plan period are as under:-
Results of the First Quarter (July – Sept, 2002): The target of the first quarter could not be fully met essentially because of less recovery of dues from the public (Rs 490 million) and private (Rs 317 million) sector consumers. Similarly, since the loan of Rs 4 billion could not be arranged during the first quarter payments to this suppliers was deferred.
Implementation Plan: 5. The targets fixed for the FIP are in fact ambitious and require continuous dedicated efforts at all level in KESC. Realising the importance of the plan and the fact that survival of KESC depends on the same. A dedicated team of senior management/engineers of KESC has been assigned the responsibility of implementation of the plan.
It would be ensured by the team that the funds received during plan period are effectively utilised to achieve the targets. Action plans have already been made. Initial steps to quantify the T&D losses at each point from generation to distribution have been taken and the metering of transformers, feeders and PMTs is already under progress.
An engineer will be responsible to account for the losses resulted from supply of electricity and the actual billing. Other technical measures will also be implemented on receipt of funds for procurement of material and award of contracts for the execution of various steps of the plan.
Pakistan Railways: Explanation for variation in actual performance as against the targets given in the FIP during the quarter July-September, 2002.
Revenue Receipts: The main shortfall ie Rs 99.545 million in revenue is in Military Traffic, which has been handled less than the estimates. The Marketing Directorate has geared up its activities and made up the previous deficiency in the 2nd quarter. It is hoped that the PR will achieve the revenue targets during 2002-03.
Revenue Expenditure: As usual the pace of expenditure remains slow in first quarter of the year due to initiation of tendency process and allocation of funds down to each spending units. In addition, there is also an effective control over expenditure and all the Railways units have been advised to remain within their budgetary ceilings.
CASH FLOW STATEMENT: There is a minor saving in utilisation of foreign loans in Capital Expenditure being first quarter of FY 2002-03.
Foreign Loans (Existing)
Due to less disbursement of existing foreign loans for ADP
New Foreign Loans
Due to excess receipt of new foreign loans for ADP
Repayment of Foreign Loans (Existing)
Due to less recovery of foreign loans than the estimates.
GP Fund Deductions
This represents less deduction of GP Fund made from the salaries of staff than the estimates.
Payment of GP Fund
This represents more payments of GP Fund to staff than the estimates.
OTHER ACCOUNTS: Adjustment made by SBP
This amount was wrongly credited by SBP to Railways' Account III during the financial year 2001-02. This amount has been reversed by SBP on account adjustment made by SBP
This amount has been paid back to Railways by SBP on account of excess recovery made from Railways under head “Interest on SBP's overdraft.” during the previous financial year.
Deposits/Remittance Receipts
This represents the amount received under the head “Deposits” during the Ist quarter.
Deposits/Remittance Payments
This represents the amount debited to this head during first quarter.
Transfer from A/C XI: This amount was temporarily transferred from Account XI to feed three projects, which was to be replenished after receipt of regular release.
Transfer to CDR: Pakistan Railways was allowed to open a Compensation/Damage Repair Account separately. In order to feed that Account Rs 70.000 million were transferred to this Account which has been opened in NBP Railway HQ: Branch Lahore.
Outstanding Cheques current: This indicates the amount of cheques, which were issued during the period from July 1, 2002 to September 30, 2002 but could not be presented to SBP during the first quarter.
Outstanding Cheques previous: This represents the total amount of cheques, which were issued during the previous financial year but were presented and debited to Railways Account after 01.07.2002 up to September 30, 2002.
Pakistan Steel: Explanation for Variations in Actual Achievements against Targets Given In the FIP For The Quarter July – September, 2002:
The average rupee dollar exchange rate during the quarter was US$: 1 = Rs 59.60 against the target of Rs 60.50.
Production: The actual capacity utilisation during quarter was 81 percent as against 83 percent projected for the quarter. Production of steel products depends upon market demand, inventory levels, planned repairs of various production units, etc. The actual production of steel during quarter was sufficient to meet the market demand.
Sales: The sales in both quantity and value terms increased during the quarter. The actual quantity of steel sold during quarter was 296,000 tonnes against the projected quantity of 290,000 tonnes. Similarly, in value terms, the net sale during the quarter was Rs 5.037 billion as against the target of Rs 5 billion.
Cost of Production: The cost of production during the quarter decreased except depreciation and financial charges. Due to an oversight, the depreciation during the quarter was under estimated.
Profit and Loss: The net loss during the quarter stood at Rs 20 million as against projected net loss of Rs 56 million.
Cashflow Position: The cash receipts against sales during the quarter were Rs 4.59 million as against Rs 5 billion projected for the quarter. The main reason for the shortfall in cash receipts against sales was credit sale to the customers to the extent of Rs 447 million. However, the liquidity position during the quarter remained satisfactory and no borrowings were made. After meeting all the financial obligations, the company was carrying cash bank balance of Rs 1.629 million at the end of the quarter.
