The integrity of the financial statements and the alleged unlawful accumulation of more than Rs375 billion in claims by the Karachi-based power provider against the federal government has been seriously questioned by a former member of K-board Electrics of directors.
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, Asad Ali Shah, the former president of the Institute of Chartered Accountants Pakistan (ICAP), noted that he had been pointing out irregularities in the utility’s financial accounts for many years as a member of the board and the audit committee.
Although Mr. Shah and another board member raised concerns, the KE management, its majority of board members, and the external auditor, A.F. Ferguson, a partner at PricewaterhouseCoopers (PwC), did not rectify the problem to meet accounting requirements. They also did not record their concerns.
In addition to saying that KE’s receivables and cumulative profits were overstated by a significant sum of Rs53.5bn and that there was insufficient disclosure to highlight material uncertainties with respect to the recovery of such amounts in the financial statements, his list of fiduciary concerns spans 15 pages.
Such claims, he said, were based on a misstatement of facts and misrepresentation of court orders and Nepra determinations.
He claimed that when KE’s tariff petitions were brought before Nepra, the auditors were paid not only for their auditing and accounting services but also for their advice, which constituted a blatant conflict of interest. It highlighted how KE broke norms and regulations for many years by taking large write-offs of debt and claiming subsidies without getting permission from regulators.
Such allegations were dismissed by KE and Shabbar Zaidi (the former chairman of FBR and ex-partner of AFF-PwC). Salman Hussain, the current senior partner at PwC, declined to comment because it went against the ethical norms of his company.
Asad Shah also questioned how connections made for the purpose of receivables that are Kunda (illegal) and made without identity cards could be handled. Since KE was a public interest organization and still held around 26 percent of government shares, he claimed that when the company and its auditors failed to address fiduciary concerns, he was now writing to regulatory agencies and federal ministries.
He regretted that the state had appointed inept or uninformed individuals to the board and requested that the government designate individuals with sufficient financial means to serve on the boards of all SOEs.
He claimed that by making false statements to members, investors, lenders, and regulators, the company’s credibility and long-term survival would be undermined, his concerns were in the best interests of KE.
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.
