Power div finds consultant's suggestion hard to accept

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FE Report
The state-owned power sector entities should write off electricity bills older than three months from their balance sheets as part of the broader goal of restructuring the ailing industry, a report prepared by Fichtner has suggested.
The electricity arrears of both the government and the private customers will be considered for the write-off.
The report also suggested converting the Bangladesh Power Development Board (BPDB) into a holding company, with the transfer of government shares in Dhaka Electricity Supply Authority (DESA) and Dhaka Electricity Supply Company (DESCO) to the future company.
"The recommendations of Fichtner are timely and are crucial for restoring the financial health of the loss-incurring power sector companies," a senior power division official said.
"Although the three month cut-off period is internationally accepted best practice, we cannot implement it. For this reason, we are considering erasing outstanding power bills exceeding three years instead of three months," the official added.
Commissioned by Power Cell, Fichtner, a German consultancy firm, submitted the report to the government for its consideration.
Financial restructuring is aimed at improving the financial position and the long-term viability of the existing power sector entities such as the BPDB and the Power Grid Company of Bangladesh (PGCB).
"The financial restructuring involves the measures such as writing off non-collectible accounts receivable from private end-use customers and building up of provisions for balances of private end-use customers receivables in excess of three months billing," says the report.
As a basis for the write-off, the report noted that it would be necessary to reconcile the commercial operation statistics and financial accounting, adjust the financial statements of the companies and erase receivables which cannot be recovered.
In the same way, the companies need to minimise inter-company accounts resulting from bulk energy supply and wheeling services to a level of three months billing, it said.
Power Division officials said the government considers engaging a consultant to deal with overstatement of asset values in the DESA's books and write-off of transmission assets in the BPDB's books.
In order to reduce the debt burden from foreign loans and government credits, the Fichtner report recommended the government establish the loan balances for foreign and local loans as well as for the unpaid debt service liabilities with all power sector entities.
It also recommended transferring local loans to equity to achieve the targeted debt: equity ratio of 60:40.
The history of losses incurred by the power entities is not new, with almost of them are virtually illiquid.
The BPDB's revenues do not cover its operating expenses and it is not in a position to service its debt and pay for the wheeling charges.
The DESA is bankrupt and its capital reserves are negative. The company's major problem is related to the high system losses and the low billing and collection ratios.
Due to the dearth of cash flow, the DESA does not make its debt service payments to the government and it is not able to pay for the electricity purchased from the BPDB.
As of the fiscal 2005-06, according to official figures, the cumulative outstanding bills of BPDB stood at Tk 45 billion.
The electricity arrears of the DESA and the REB were Tk 78 billion and Tk 46.4 billion respectively upto December of the fiscal 2006-07.
Although precise outstanding bills of the DESCO were not available, the DESCO officials said it was able to cut its arrears from 39 per cent to 36 per cent in the just-out fiscal.