For appearances’ sake: PM forms committee to deal with power crisis

Five-member panel to consider ways to reduce the energy sector’s circular debt.

Express August 08, 2011


Rather than taking the tough measures necessary to solve the country’s chronic power crisis, Prime Minister Yousaf Raza Gilani has formed a ‘high powered’ commission to suggest ways to end the prolonged electricity outages in the country.

The prime minister is reported to have set up the panel on Sunday, shortly before he left for a two-day visit to Saudi Arabia, a visit in which sources said Gilani may seek Riyadh’s assistance in solving the energy crisis.

The panel will be headed by Finance Minister Abdul Hafeez Shaikh. Two other cabinet members – Water and Power Minister Naveed Qamar and Petroleum Minister Asim Hussain – are also on the panel along with Planning Commission Deputy Chairman Nadeemul Haq and the acting governor of the State Bank of Pakistan, Yaseen Anwar.

The committee is likely to focus on the issue of the inter-corporate circular debt that has financially crippled the energy sector. The circular debt started when the government promised subsidies to the energy companies rather than letting them raise prices, but then did not pay many of them, forcing them to borrow from banks to pay each other until they reached a limit where they cannot borrow any more.

As a result of the debts – and the government’s refusal to let the energy companies raise prices for fear of the political backlash – the energy sector has begun producing less and less power even as demand continues to rise, resulting in longer and longer power outages which then produce the political backlash that the government was trying to avoid in the first place.

Yet the existence of circular debt has not prevented the government from continuing to subsidise the consumption of electricity in the country. For the fiscal year that ended June 30, 2011, the government spent Rs395 billion on subsidies, of which three-quarters was for electricity.

The government appears to not have an exact figure for just how much circular debt there is in the energy sector, though reports in the media, based on conversations with officials at the largest energy companies in the country, puts the figure close to Rs400 billion.

It is not clear if that number reflects the gross circular debt – the combined liabilities of all companies – or the net circular debt, which would include just the sum of their payables minus the sum of their receivables.

“The focus of the committee will be bringing this down to around Rs100 billion… if that is achieved, we can safely say power crisis in Pakistan is over,” said an official.

A statement issued by the prime minister’s office said that the committee had been empowered to think of ‘out of the box solutions’. While PM Gilani said that he hoped that the committee would finalise its recommendations soon, he did not provide a timeframe for them to complete their work.

Of the five members of the panel, three of them – the finance minister, the petroleum minister and the deputy chairman of the Planning Commission – are in favour of deregulating prices in the energy sector and ending all forms of subsidies.

Published in The Express Tribune, August 8th, 2011.