Circular debt in energy chain swells to Rs1.18 trillion

Published: September 9, 2018
Representational image. PHOTO: REUTERS

Representational image. PHOTO: REUTERS

ISLAMABAD: The circular debt in the energy chain, which stood at Rs105 billion at the end of Pervez Musharraf’s tenure in 2008 and was parked in a holding company, has ballooned 454% to Rs582 billion in the past 10 years despite clearance of Rs480 billion worth of debt in mid-2013 by the Pakistan Muslim League-Nawaz (PML-N) administration, say officials.

The power sector endured a crisis-like situation during the tenure of Pakistan Peoples Party (PPP) government and later during the rule of PML-N administration when commercial borrowings from banks increased Rs477 billion.

The PML-N government imposed several surcharges totalling Rs2.3 per unit to clear the debt of power distribution companies. However, despite that, the power sector remains a major challenge for the new Pakistan Tehreek-e-Insaf (PTI) administration.

Country banking on CPEC to revive economy

According to officials, total circular debt as on July 31,2018 amounted to Rs1.18 trillion, which included Rs596 billion of debt and Rs582 billion parked in Power Holding Private Limited (PHPL). In 2008, the debt parked in PHPL stood at Rs105 billion.

Power generation companies have to pay Rs8 billion to gas suppliers, Rs107 billion to oil suppliers while the Central Power Purchasing Agency-Guarantee (CPPA-G) has to pay Rs375 billion to independent power producers (IPPs) and Rs20 billion to nuclear power plants.

The Water and Power Development Authority (Wapda) has to pay Rs84 billion to the National Transmission and Despatch Company (NTDC).

Since 2013-14, the shortfall in bill collection by the distribution companies had been estimated at Rs434 billion. Quetta Electric Supply Company (Qesco) was on top of the list with 38% shortfall.

The circular debt has continued to mount as it stood at Rs565 billion on June 30, 2018 and surged to Rs595 billion in one month, posing a serious threat to the country’s economy.

Now, the PTI government is considering a plan to burden honest consumers, which are paying their bills regularly, with payment of Rs202 billion in order to pass on the full impact of power theft to overcome the circular debt.

Actual line losses in the power sector came in at 18.3%, but the National Electric Power Regulatory Authority (Nepra) allowed recovery of 16.3%, which resulted in addition of Rs202 billion to the circular debt.

Officials revealed that the finance minister had directed the Ministry of Energy (Power Division) to hold meetings with Nepra officials to discuss the shifting of 2% differential to the consumers.

Following the meetings, a report will be submitted to the finance minister for taking action. Various factors were highlighted which had been blamed for the increase in circular debt. These included lower recovery of electricity bills and constraints faced by distribution companies.

Bill recoveries – which was one of the major reasons – stood at 90% adding Rs205 billion to the circular debt.

Another Rs102 billion was added to the debt due to non-payment of subsidy to the former Federally Administered Tribal Areas (Fata), which are now part of Khyber-Pakhtunkhwa, Azad Jammu and Kashmir and industrial units. An amount of Rs86 billion was due against K-Electric.

During its 2013-18 tenure, the PML-N saddled consumers with surcharges of Rs2.3 per unit, which inflated their electricity bills. It imposed several new surcharges including the financial cost surcharge, tariff rationalisation surcharge and debt servicing surcharge to pocket billions from the consumers.

The former government also borrowed Rs180 billion to ease the circular debt in the last two months of its tenure and the amount was being recovered from consumers through surcharges on their electricity bills.

Published in The Express Tribune, September 9th, 2018.

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Reader Comments (3)

  • Sajjad
    Sep 9, 2018 - 4:01PM

    CPEC is the game changer !!!!
    Anothar 2 years more !!!!Recommend

  • Daniyal shah
    Sep 9, 2018 - 6:34PM

    The government should introduce sovereign bonds for construction of dams and other renewable energy sources . So that public could invest in it. In return the government could provide free electricity units eqivalent to their investment. In this way we could attract a lot of capital. The byproduct could be surplus water and clean air for the countryRecommend

  • dubious
    Sep 9, 2018 - 8:51PM

    Circular debt is just a scam originally designed to park debt “off books” – it got so big that even the IMF figured it out. Now it’s just an embarrassment with the govt totally responsible for the mess. Great example of why govt’s and politicians should not be running businesses.
    If our govt uses something as critical as the energy chain to manipulate it’s finances then maybe they shouldn’t be involved in managing it? You don’t see the USA govt responsible for buying oil, setting prices etc .. and everyone pays their bills in the USA or service get cut off and they are eventually forced to pay penalties in addition to the money they owe. Recommend

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