ISLAMABAD: As the government fails to control the accumulation of circular debt, it has now suggested that gas and power sector firms may be transferred to the provinces in a bid to take the burden off the federal government.
In a meeting of the Economic Coordination Committee (ECC) of the cabinet held on April 26, Prime Minister Shahid Khaqan Abbasi said circular debt in the power sector has reached unsustainable levels.
He said issues of the power sector were discussed in detail at a meeting of the Council of Common Interests (CCI), and it would be appropriate that gas and power sectors be transferred to the provinces.
At present, circular debt has exceeded Rs1 trillion with Rs600 billon of the total parked in the government’s power holding company. It would be paid by consumers through various surcharges.
When this government came into power in 2013, circular debt stood at Rs480 billion, an amount that was cleared.
The present government has also imposed different surcharges like debt servicing, tariff rationalisation and financial cost to pay off the circular debt. Despite the measures, circular debt has remained out of control due to inefficiencies and power theft in distribution companies.
During the discussion in the ECC meeting, secretary finance division said there was no more space to finance the power sector. However, he said the finance division is ready and willing to facilitate commercial borrowings from banks against sovereign guarantees.
He said that an amount of Rs50 billion could be arranged as the first installment while another Rs50 billion could be arranged in May.
Minister for Power Division Awais Khan Leghari requested the ECC to arrange Rs100 billion by May 20 to run the power system. He further said that lack of investment in technology is the main reason behind the decline in recovery of power sector bills.
The Power Division proposed to raise Rs50 to Rs100 billion through commercial banks as a fresh financing facility and would be arranged through the Power Holding Private Ltd (PHPL).
The amount was requested to pay off liabilities distribution companies owe to the Central Power Purchasing Agency (CPPA).
The servicing of this new loan as well as principle amount will be made through imposition of surcharge on consumers for an interim period of six months. However, the servicing of mark-up will require the support of the government and the same will be treated as equity in power distribution companies. The settlement done through this arrangement will primarily settle overdue payments in the total payables of the CPPA towards various sectorial entities.
After detailed discussion, the ECC approved the commercial borrowing of Rs100 billion in two installments.
Leghari also pointed out that every year, a substantial cost of Rs50 billion is incurred on power supply to tubewells in Balochistan. He said that there is a dire need to convert them to solar power, in an attempt to cut cost.
Published in The Express Tribune, May 5th, 2018.