Circular debt challenge

Circular debt remains the “biggest” of the seven challenges in Pakistan’s power sector, says a recent study conducted by Engro Energy Limited to identify problems in the power supply chain. Currently standing at Rs2.2 trillion, the circular debt is growing 60% annually and would be doubled by 2025, according to the study titled ‘Fixing Pakistan’s Power Sector’. It is no secret that low recovery of monthly bills and rampant power theft have given birth to the complicated circular debt which continues to grow at a rapid pace due to mismanagement and inefficiency, mainly on the part of the nine power distribution companies operating in the country. In addition to the permissible 16% line losses – which are recoverable from consumers through monthly bills – these distribution companies are incurring 12% losses on an average, including those due to theft.

It is the power consumers that are bearing the brunt of this mismanagement and inefficiency in the form of quite a few surcharges that continue to inflate their power bills. Pakistan produces the most expensive power in the whole world. The cost of power production in Pakistan for industrial consumers is 26% higher as against other countries in the region like India, Bangladesh, Sri Lanka, Vietnam and Thailand. And for residential consumers, this cost is 28% higher than in the mentioned countries. This high power tariff – also a major hindrance to foreign investment in Pakistan – is also mentioned in the Engro report as the fourth biggest power sector challenge. The others are: excess production capacity (second), low demand (third), import of fuels to produce electricity (fifth), power outages (sixth) and need to expand transmission infrastructure (seventh).

On assuming power, the PTI government had vowed to nip the menace of circular debt in the bud. To the contrary, they have worked to increase it from Rs480 billion as of June 2013 to Rs2.2 trillion currently – an addition of Rs1.72 trillion in two years which comes to Rs71 billion a month or Rs2.3 billion a day.