Fearing higher deficit, govt reluctant to clear circular debt

Ministry of Finance to release just Rs6b against Rs393b debt

ISLAMABAD: The pressure to keep fiscal deficit within reasonable bounds before the announcement of next budget has prevented the government from releasing adequate funds to clear the runaway circular debt.

The mounting debt threatens to choke supply lines across the entire energy chain, particularly credit flow to state-run marketing major, Pakistan State Oil (PSO).

After coming to power in mid-2013, the current government of Pakistan Muslim League-Nawaz (PML-N) had wiped out the entire Rs480 billion worth of circular debt with claims that it would now run energy companies smoothly.



However, after four years, the picture is not very much different as the debt has again soared to Rs393 billion. This figure is disputed by the Independent Power Producers Advisory Council, a lobby group of private power producers, which puts the debt at Rs414 billion, but it is termed fake by the Ministry of Water and Power.

According to officials aware of the development, the Ministry of Finance is going to release Rs6 billion, of which PSO is expected to get just Rs3 billion. The money for PSO can undoubtedly be called just peanuts because its receivables stand at a staggering Rs274 billion.

With such shackles, the oil marketing company has been unable to pay off Rs63 billion for oil supplies from Kuwait and liquefied natural gas (LNG) purchase from Qatar. It has almost exhausted all available credit lines from banks and only Rs8 billion is left under the facility, say officials.



PSO’s receivables from the power sector stand at Rs235 billion, of which state generation companies (Gencos) owe Rs140 billion.

Overall, receivables of PSO have gone up to Rs280 billion whereas the Ministry of Finance has released only Rs20 billion.

“Secretaries of water and power and petroleum and natural resources have reached an understanding that current dues of PSO against power companies will be settled,” an official said.

The Ministry of Water and Power has also approached Prime Minister Nawaz Sharif, asking him to direct the Ministry of Finance to earmark an additional electricity subsidy for the ongoing financial year 2016-17.

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In 2015-16, subsidy payments had jumped to Rs196.54 billion compared to the target of Rs137.6 billion. According to FY17 budget documents, an amount of Rs95.4 billion had been set aside for subsidising the power consumers, excluding those of K-Electric.

According to the official, the entire subsidy has been consumed and the ministry has nothing to retire the energy chain’s debt. The government has imposed some types of surcharges on power consumers in an effort to ease the pressure on federal budget.

Recently, the independent power producers (IPPs) had threatened that they would invoke sovereign guarantees if the government did not pay off their dues.

“Finance secretary held a meeting recently to review the debt situation, but the finance ministry agreed to release only Rs6 billion, which was insufficient for the debt pile,” the official said.

Published in The Express Tribune, March 26^th, 2017.

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