Despite fall in crude oil prices: Senators seek reasons for rising circular debt
Earlier Rs480b debt was cleared in haste and without transparency
Experts say country desperately needs to increase exports, arrest increase in debt. STOCK PHOTO
ISLAMABAD:
The Senate Standing Committee on Finance has aired its concern over the re-emergence of over Rs300 billion worth of circular debt, though crude oil prices have fallen persistently in the international market, which brings down the cost of production for many energy companies.
Members of the committee, headed by Senator Saleem Mandviwalla, recalled that the current government had cleared Rs480-billion circular debt just after coming to power in mid-2013, but noted that the debt again piled up to Rs321 billion in three years.
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They sought explanation from the Ministry of Water and Power and the Ministry of Finance on how the debt could not be prevented from rearing its head again.
The members were also not satisfied with the earlier payment of Rs480 billion to clear the outstanding bills of independent power producers (IPPs), arguing that the money was released in haste, without transparency and the required procedure was not followed.
Senator Mohsin Aziz, who represents the Pakistan Tehreek-e-Insaf, raised questions about the mounting circular debt and said the atmosphere was conducive for getting rid of the burden as domestic electricity tariffs were going up and crude oil prices were going down in the global market.
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“In a simple case when the cost of production is high and sales price is low, then the result is circular debt, but in this case it is contradictory,” said Senator Kamil Ali Agha while asking officials of the Ministry of Water and Power about reasons for the rising debt.
He also wanted to know whether the government was giving any subsidy on electricity, but the answer of officials was in negative.
Former finance minister Mandviwalla, who held the portfolio during the tenure of previous Pakistan Peoples Party (PPP) government, commented that such a thing had never happened in the past when a ministry prepared a summary on an emergency basis for clearing the circular debt, got it approved from the Economic Coordination Committee and made payment on the same day.
“It meant that the summary was not even sent to the quarters concerned for their comments and nobody actually read the document,” he said.
Officials of the Ministry of Water and Power told the committee that a memorandum of understanding (MoU) had been signed in 2013 between the government and the IPPs for switching their fuel base from oil to coal.
According to the understanding, the National Electric Power Regulatory Authority (Nepra) approved tariffs for three IPPs and they were building infrastructure for their plants.
However, after being briefed on various aspects of the MoU, the committee members termed it a one-sided agreement that favoured the IPPs only. “It seems to be a superficial document and in the interest of IPPs,” a senator remarked.
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The committee noted that crude oil prices stood around $120 per barrel in 2014 and the electricity tariff was Rs7 per unit, but now oil was priced at around $40 per barrel and power supply cost Rs12 per unit. Then how the circular debt was rising in such a situation, it asked.
To a question about whether the power ministry would be allowed to conduct an efficiency audit of power producers, the water and power additional secretary revealed that it was part of the MoU, but later the power producers refused to comply on technical grounds.
The committee members decided to hold a separate meeting on the subject and directed the ministry to bring power production data of the Musharraf, PPP and current governments in the sitting.
Published in The Express Tribune, September 2nd, 2016.
The Senate Standing Committee on Finance has aired its concern over the re-emergence of over Rs300 billion worth of circular debt, though crude oil prices have fallen persistently in the international market, which brings down the cost of production for many energy companies.
Members of the committee, headed by Senator Saleem Mandviwalla, recalled that the current government had cleared Rs480-billion circular debt just after coming to power in mid-2013, but noted that the debt again piled up to Rs321 billion in three years.
Pakistan’s oil and gas discoveries touch record
They sought explanation from the Ministry of Water and Power and the Ministry of Finance on how the debt could not be prevented from rearing its head again.
The members were also not satisfied with the earlier payment of Rs480 billion to clear the outstanding bills of independent power producers (IPPs), arguing that the money was released in haste, without transparency and the required procedure was not followed.
Senator Mohsin Aziz, who represents the Pakistan Tehreek-e-Insaf, raised questions about the mounting circular debt and said the atmosphere was conducive for getting rid of the burden as domestic electricity tariffs were going up and crude oil prices were going down in the global market.
New discovery of crude oil, gas reserves in Khyber-Pakhtunkhwa
“In a simple case when the cost of production is high and sales price is low, then the result is circular debt, but in this case it is contradictory,” said Senator Kamil Ali Agha while asking officials of the Ministry of Water and Power about reasons for the rising debt.
He also wanted to know whether the government was giving any subsidy on electricity, but the answer of officials was in negative.
Former finance minister Mandviwalla, who held the portfolio during the tenure of previous Pakistan Peoples Party (PPP) government, commented that such a thing had never happened in the past when a ministry prepared a summary on an emergency basis for clearing the circular debt, got it approved from the Economic Coordination Committee and made payment on the same day.
“It meant that the summary was not even sent to the quarters concerned for their comments and nobody actually read the document,” he said.
Officials of the Ministry of Water and Power told the committee that a memorandum of understanding (MoU) had been signed in 2013 between the government and the IPPs for switching their fuel base from oil to coal.
According to the understanding, the National Electric Power Regulatory Authority (Nepra) approved tariffs for three IPPs and they were building infrastructure for their plants.
However, after being briefed on various aspects of the MoU, the committee members termed it a one-sided agreement that favoured the IPPs only. “It seems to be a superficial document and in the interest of IPPs,” a senator remarked.
OGRA recommends upward revision in oil prices
The committee noted that crude oil prices stood around $120 per barrel in 2014 and the electricity tariff was Rs7 per unit, but now oil was priced at around $40 per barrel and power supply cost Rs12 per unit. Then how the circular debt was rising in such a situation, it asked.
To a question about whether the power ministry would be allowed to conduct an efficiency audit of power producers, the water and power additional secretary revealed that it was part of the MoU, but later the power producers refused to comply on technical grounds.
The committee members decided to hold a separate meeting on the subject and directed the ministry to bring power production data of the Musharraf, PPP and current governments in the sitting.
Published in The Express Tribune, September 2nd, 2016.