Electricity supply: Finance ministry asked to clear Rs72b unpaid subsidy bills

Power companies unable to pay liabilities due to high distribution losses.

ISLAMABAD: The Ministry of Water and Power has asked the Finance Division to take over the payment responsibility of Rs72 billion worth of unpaid subsidy bills which have been pending for the last two years.

The matter was taken up in a meeting of the Economic Coordination Committee (ECC) held on August 12, officials say.

“These are chronic bills pending for the last two years; the Finance Division should meet its commitment and retire the bills on account of various heads of power subsidy,” the water and power ministry said.

The ministry admitted that state-owned power companies were suffering high distribution losses caused mainly by electricity theft and low bill recovery.

Factors like thin subsidy budget, lower applicable tariff, unsatisfactory revenue collection and higher thermal generation were adding to the cost of electricity production, hurting the ability of distribution companies to settle their liability against the Central Power Purchasing Agency (CPPA).

As a result, the CPPA cannot pay the cost of power purchase to the independent power producers (IPPs) and electricity generation companies.

In this situation, the distribution companies had to resort to borrowing from banks to clear the CPPA bills.

Power Holding (Private) Limited arranged a loan through a syndicated term finance facility on behalf of the distribution companies. The facility was for 15 months with no renewal or rollover provision.

The water and power ministry told the ECC that the Finance Division had agreed to bear the cost of servicing the financing facility as an amount of Rs72 billion had been unpaid under various subsidy heads during 2013-14 and 2014-15.

The Finance Division also approved the terms and conditions of the facility, paving the way for its release.

The water and power ministry said the Ministry of Finance would provide government guarantees for loan repayment as well as interest expenses for the financing facility amounting to Rs7.487 billion.

The servicing of mark-up, principal amount, its repayment and all other costs becoming due and payable in respect of the facility would be the responsibility of the Finance Division, it said and sought ex-post facto approval of the proposal.

The ECC reviewed a summary in this regard and approved the issuance of sovereign guarantees by the finance ministry in respect of the syndicated term finance facility for the power sector.

State-owned power companies have not performed well over the years, though the new government came to power in mid-2013 with the slogan that it would end the crippling outages across the country.

On the other hand, consumers have been forced to pay hefty bills with the imposition of power surcharges in order to clear debts of inefficient electricity distribution companies. This shows that honest consumers are also bearing the losses caused by the defaulters that have not paid bills for several years.

Even the government has announced an amnesty scheme for the defaulters to encourage them to start paying their bills, but still honest consumers are being penalised with the levy of different surcharges.

Published in The Express Tribune, August 23^rd, 2015.

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