Monday, 21 March 2016

Accounting flaws in transfer of liabilities to power cos: CAG

"While unbundling the erstwhile Board (PSEB), Government of Punjab placed a financial burden of Rs 25,097.64 crore on the two successor entities -PSPCL and PSTCL - by passing unfunded liabilities to them," said a latest report of Comptroller and Auditor General of India (CAG) on PSUs for 2014-15.



While unbundling of erstwhile Punjab electricity board, two new entities -- PSPCL and PSTCL -- were saddled with liability of over Rs 25,000 crore even as the state government had decided to provide clean opening balance sheets to the successor companies, says a CAG report. "While unbundling the erstwhile Board (PSEB), Government of Punjab placed a financial burden of Rs 25,097.64 crore on the two successor entities -PSPCL and PSTCL - by passing unfunded liabilities to them," said a latest report of Comptroller and Auditor General of India (CAG) on PSUs for 2014-15. The erstwhile Punjab State Electricity Board (PSEB) was unbundled into two successor companies - Punjab State Power Corporation Limited (PSPCL) and Punjab State Transmission Corporation Limited (PSTCL) on April 16, 2010. 


Punjab government had framed 'Punjab Power Sector Reforms Transfer Scheme, 2010, for providing and giving effect to the transfer of functions, undertakings, assets, rights, liabilities, proceedings and personnel of the Board which was amended under the provisions of the Electricity Act, 2003, as per report. 

"We observed that liabilities of erstwhile Board (PSEB) amounting to Rs 25,097.64 crore (loss written off of Rs 10,751.64 crore and terminal benefits of Rs 14,346 crore) were transferred to the two successor entities, either by incorrect accounting or by not recognising clear liabilities in the opening Balance Sheet," CAG said. Though from the time of conception of the scheme of unbundling, Punjab government had decided to provide clean balance sheet to the successor entities and not to transfer past accumulated losses yet the new entities were saddled with huge liability to begin with, noted CAG in its report. 

The erstwhile Board had accumulated losses of Rs 10,180.35 crores at the time of unbundling, which did not appear in the balance sheets provided to the two successor companies. This was done by setting off these losses against the capital reserve created by revaluation of land assets held by the erstwhile Board, CAG observed. The adjustment of accumulated losses against reserve created on land revaluation was in violation of generally accepted accounting principles as the revaluation reserve does not represent a realised gain and is the result of a book adjustment, report further said.

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