ISLAMABAD - The Securities and Exchange Commission of Pakistan has notified the Electric Power Generation Industry (Cost Accounting Records) Order, 2015, for the companies engaged wholly or partially in generation of electric power energy in Pakistan under the licences granted by the National Electric Power Regulatory Authority.

The purpose of the cost order is to introduce cost-reporting regulatory framework for power sector companies in order to bring transparency and increase public confidence, in view of the fact that power sector is central to the public policy. The Vision 2025 of Pakistan also takes into account power sector as major pillar of progress.

It may be mentioned here that the Cost Order is not independent power producers (IPPs) specific but is for all current and prospective power producers and there can be no special treatment for IPPs as they have similar operations like other power producers. Similar orders have been issued for the chemical fertilizer industry, sugar industry, cement industry, and the vegetable ghee and cooking oil companies.

Previously, Transparency International Pakistan (TIP) had also approached SECP and stressed the need for conducting cost audit of IPPs under the applicable laws.

Cost accounting is not only done to determine final product price, but it has also multiple benefits for individual companies. Nepra’s Uniform System of Accounts (USoAR) Rules, 2009, cannot replace the Cost Order. The SECP Cost Order pertains only to the cost components of the companies, whereas USoA Rules cover the whole financial reporting structure (i.e. complete accounts) of the Nepra licensee(s) of which cost is one component. The SECP Cost Order will facilitate and support compliance of Nepra USoA Rules, 2009.

In SECP’s view, the issuance of Cost Order would provide a legal framework within which Nepra would be enabled to determine prudence of costing claimed by the generation companies while seeking tariff. Further, by introducing these and similar initiatives in the oversight of generation companies, the power purchasers would be in a stronger position to determine whether billing by the company has been done in a transparent and fair manner, which will be a great service to the general public in the current scenario. Moreover, transactions between the power purchasers and the IPPs are all backed by the government of Pakistan’s guarantees.

The SECP earlier held various roundtables and other consultations with industry experts, representatives of Nepra, Gencos and other power generation companies to address any of the concerns on applicability of the Cost Order. This Cost Order is based on the feedback received in the consultation process.

It is pertinent to mention that a few IPPs and their advisory council sought further time for giving comments on the Draft Electric Power Generation Industry (Cost Accounting Records) Order, 2015. However, the commission had already held stakeholders’ conferences in Islamabad on October 4, 2012, in Lahore on December 27, 2012, and in Karachi on March 26, 2013. Independent Power Producers Advisory Council (IPPAC) also participated in the Islamabad conference after which it was requested that similar conferences be held in Lahore and Karachi. Cost accounting by its nature is useful for all manufacturing concerns, including power generation . Cost accounting is not just done to determine final product price, but has multiple benefits both for the company and the sector.

SECP is of the view that cost audit reporting is necessary to foster efficiency and ensure accuracy of financial reporting. From the regulatory perspective, cost audit is a tool to independently verify financial information disseminated to the shareholders. For companies, it can serve as an important tool for effective enterprise governance and competitiveness.

The SECP, as a regulator, strives to frame regulations in the interest of the industry and all other stakeholders, including the public.