Circular debt
Circular debt of Rs300b has piled up despite massive fall in international crude oil price
Towards the end of IMF's three-year bailout, it was revealed that the plan had been shelved, no doubt due to the failure to restructure and reform DISCOs. PHOTO: EXPRESS
The rise of Pakistan’s circular debt always seems to be in the news. In the latest development, senators have sought reasons for the Rs300 billion stock of circular debt that has piled up despite the massive fall in international crude oil prices and the fact that the government cleared around Rs480 billion as soon as it came to power. The cost of power generation is as low as it can be and has given the government the chance to reduce subsidies and control the budget deficit. It has also meant that power producers can now actually reap profits. The fall in crude oil prices has been massive, meaning that Pakistan can save on multiple fronts including on the import bill and subsidies given to the energy sector, while keeping tax revenue higher on petroleum products by denying full benefit to the consumer.
Given these developments, it is a shame that circular debt has been on the rise. It basically means that no matter what the cost of production or the amount of subsidies, there are some consumers who will either not pay what they owe or that inefficient power companies will find a way to increase their receivables. A closer analysis reveals that provincial governments are as much to blame as those consumers who are involved in power theft. The entire system is complex and corrupt. Hence, there was never any doubt that the power sector needed structural reforms. It needed to be made efficient. One hope was the IMF bailout programme through which Pakistan promised reforms and privatisation of power distribution companies. Towards the end of the three-year bailout, however, it was revealed that the plan had been shelved, no doubt due to the failure to restructure and reform DISCOs. There are several questions that one can ask here, but there will be very few satisfactory replies. In haste, the PML-N cleared Rs480 billion in 2013, and there are question marks there as well. But, as is the case in government affairs, there are very few answers that can satisfy the public.
Published in The Express Tribune, September 4th, 2016.
Given these developments, it is a shame that circular debt has been on the rise. It basically means that no matter what the cost of production or the amount of subsidies, there are some consumers who will either not pay what they owe or that inefficient power companies will find a way to increase their receivables. A closer analysis reveals that provincial governments are as much to blame as those consumers who are involved in power theft. The entire system is complex and corrupt. Hence, there was never any doubt that the power sector needed structural reforms. It needed to be made efficient. One hope was the IMF bailout programme through which Pakistan promised reforms and privatisation of power distribution companies. Towards the end of the three-year bailout, however, it was revealed that the plan had been shelved, no doubt due to the failure to restructure and reform DISCOs. There are several questions that one can ask here, but there will be very few satisfactory replies. In haste, the PML-N cleared Rs480 billion in 2013, and there are question marks there as well. But, as is the case in government affairs, there are very few answers that can satisfy the public.
Published in The Express Tribune, September 4th, 2016.