ISLAMABAD: A former member of the board of directors of K-Electric has raised serious questions over the integrity of financial results and alleged illegitimate build-up of more than Rs375 billion claims by the Karachi-based power utility against the federal government.

Former president of the Institute of Chartered Accountants Pakistan (ICAP) Asad Ali Shah in a letter to the Pakistan Stock Exchange (PSX), Securities and Exchange of Pakistan (SECP), National Electric Power Regulatory Authority (Nepra) and the ministries of finance and power pointed out that he had been pointing out irregularities in financial accounts of the utility for many years as a member of the board and the audit committee.

However, the KE management, its majority board members and the external auditor — A.F. Ferguson which is a partner of PricewaterhouseCoopers (PwC) — did not correct the situation to the accounting standards and also did not register objections raised by Mr Shah and Naveed Ismail — another board member.

His list of fiduciary concerns spreads over 15 pages that also said that not only KE’s receivables but its cumulative profits were overstated by a huge amount of Rs53.5bn and there was insufficient disclosure to highlight material uncertainties with respect to recovery of such amounts in the financial statements.

Such claims, he said, were based on a misstatement of facts and misrepresentation of court orders and Nepra determinations.

Ex-director raises serious doubts over utility’s financial practices

He said the auditors charged not only for auditing and accounting services but also as advisers when they pleaded KE’s tariff petitions before Nepra which was a clear conflict of interest. It pointed out the violation of regulatory rules and regulations by KE for many years in heavy debt write-offs and subsidy claims without approval from regulators.

KE and Shabbar Zaidi (the former chairman FBR and ex-partner AFF-PwC) shrugged off such allegations. Salman Hussain, the incumbent senior partner PwC, declined to comment saying it was against his firm’s professional standards.

Asad Shah also raised questions over the treatment of kunda (illegal) connections and connections given without identity cards for the purpose of receivables. He said when the company and its auditors did not address fiduciary concerns, he was now writing to regulatory bodies and the federal ministries since KE was a public interest organisation and still had about 26pc government shares.

He deplored that the state’s nominees on the board were incompetent or unaware of the situation and asked the government to nominate financially qualified members on the boards of all SOEs.

He said his objections were in the best interest of KE, as misrepresentations to members, investors, lenders and regulators undermine the company’s credibility and sustained viability.

A KE spokesperson said there was no substance to the letter written by Mr Shah which was purely an attempt to malign. “Our accounts are fully compliant with all the relevant rules and regulations including the International Financial Reporting and Accounting Standards”, the KE said, adding it would take appropriate legal action as well as file formal complaints with ICAP regarding the member’s letter that was defamatory in nature and malafide intent.

Published in Dawn, January 14th, 2023