Balloting circular debt

Illogical to believe that one can get rid of the circular debt by simply increasing the consumer tariff

The rising circular debt already having soared to Rs1.4 trillion ($10.1 bn) has further widened Pakistan’s yawning fiscal deficit. The Rs400bn borrowed recently to control its rate of expansion is not likely to ease the problem. The term ‘circular debt’ is widely understood as representing an issue whose solution has eluded policymakers for the last 10 years. One component of what constitutes circular debt is the lower rate at which electricity is being charged to the consumer than the cost of its generation and distribution. By failing to foot this subsidy bill the government builds up the circular debt. Next, the inefficiencies of government owned generation and distribution companies, free provision of electricity to Wapda employees plus concessional rate offered to defence services personnel as well as obsolete technologies affecting generation and transmission add to the cost. Next, there is this massive issue of electricity theft. And to add to the rising mountain of cost is the poor collection of electricity bills.

In view of the above, it is illogical to believe that one can in due course of time get rid of the circular debt by simply increasing the consumer tariff at regular intervals. There is, of course, some logic in trying to save money by moving power sector arrears from the balance sheet of the IPPs on to the balance sheet of government owned distribution companies. However, a logical beginning can be made in meeting the problem head on by either immediately privatising the management or ownership of DISCOs under an appropriate regulatory framework or hand them over to the provincial governments. The electricity can be supplied at the provincial borders for the provincial governments to purchase it from the Gencos and manage the DISCOs, thereby immediately relieving Islamabad’s overstretched budget from the burden of this seemingly never ending electricity subsidy.

Published in The Express Tribune, February 18^th, 2019.

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