One-time tariff increases or debt clearance is not a sustainable solution.
KARACHI: Soon after taking office, the government decided to tackle the issue of circular debt by paying off Rs500bn in arrears and loans. This was done through cash payment and the issuance of long-term government bonds called Pakistan Investment Bonds (PIB).
So why is it that we read about circular debt rearing its ugly head again? Reports suggest that the debt has increased to Rs90bn in just two months. There are multiple players within the energy production and distribution cycle and debt is predominantly created due to delayed or lack of payment at various levels.
For example, the National Electric Power Regulatory Authority (NEPRA) has significant delays in tariff determination and notification. Tariffs for fiscal year (FY) 2012 were largely based on FY 2011 tariff values even though the fuel cost was significantly higher. About 35 per cent of electricity production in Pakistan comes via furnace oil and this means that while the independent power producers were buying expensive fuel to produce electricity, they were not getting payment for it right away. There is a fuel price adjustment mechanism by which NEPRA every month accommodates variations in fuel costs. However, this only happens monthly in theory, practically there have been delays of between three and six months. An extremely high transmission and distribution loss at the level of distribution companies (DISCOs) means they produce electricity they can never get payment for. So basically, consumers steal electricity (or the government makes timely payments to these companies or tariffs are not appropriately set), DISCOs don’t pay for the electricity and IPPs run out of cash for fuel to produce electricity.
Circular debt is just one aspect of the ongoing energy crisis this country faces. One-time tariff increases or debt clearance is not a sustainable solution. Unless policymakers (and vocal uninformed critics) truly understand the problem at hand, the situation will continue to worsen. It is true that we currently do not have the installed capacity to meet electricity demand. However, the energy crisis is also an issue caused by gross mismanagement. Without a complete overhaul in the way tariffs and subsidies are set and administered, adding new projects will continue to add to the mess.
Rabia Mir
Published in The Express Tribune, August 31st, 2013.
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