Circular debt crosses the Rs400 billion mark

Govt refuses to release more precise numbers of liabilities in the power sector.

LAHORE: Some milestones, the government probably wishes it never reached. Yet on Monday, the Pakistan Electric Power Company – the state-owned firm charged with managing the national grid – confirmed that gross liabilities for Pepco related to the energy sector’s inter-corporate circular debt, have now crossed Rs400 billion.

Rasul Khan Mahsud, the managing director of Pepco and the National Transmission and Dispatch Company (NTDC), confirmed the number at a joint press conference held in Lahore with the All Pakistan Textile Mills Association, the largest textile lobby in the country. He declined to provide any more details, or even a specific number.

“Yes, it is true that Pepco’s circular debt has crossed Rs400 billion, but I am not in a position to state the exact figures or the gap between receivables and payables,” Mahsud told The Express Tribune.

The gross figures reveal the full scope of the problem, but do not necessarily mean that Pepco will need to raise the entire amount on its own or from the government. Indeed, much of the debt is accumulated because state-owned power distribution companies – all eight of which are subsidiaries of Pepco – have let billions in unpaid bills from customers pile up. As a result, Pepco cannot pay the power generation companies, which in turn cannot pay the oil companies, who in turn cannot pay the refineries, which in turn cannot pay the oil marketing companies.

At the end of December 2011, Pepco’s liabilities to power generation companies were Rs395 billion, while its receivables from power distribution companies stood at Rs375 billion, making Pepco’s net liabilities around Rs20 billion.

However, Mahsud indicated that not all of the receivables from the power distribution companies may come through, since many consumers were refusing to pay the fuel adjustment surcharge for June and July of 2010, when the nation’s power plants were forced to produce power with more expensive fuel – oil, rather than gas. The disputed amount comes to Rs70 billion.

Textile lobby protests

The textile lobby held a meeting with Mahsud and the CEO of the Lahore Electric Supply Company on Monday and demanded that the state-owned power companies manage the fuel adjustment surcharge issue better.

APTMA officials demanded more predictability in the surcharges, saying they wanted to adjust their product prices accordingly. Mahsud promised the textile lobby that he would raise the issue with the National Electric Power Regulatory Authority.

Published in The Express Tribune, January 24^th, 2012.