Circular debt monster

Circular debt remains the biggest of the seven challenges facing the power sector in the country

March 01, 2021

The power sector circular debt is set to cross Rs2.6 trillion by the end of the ongoing fiscal year i.e. FY2020-21. This is what Power Division’s Additional Secretary has told the National Assembly’s Stan¬ding Committee on Finance during a meeting last week. The crippling debt stood at Rs2.164 trillion as of June 30, 2020 and at Rs2.303 trillion as of December 31, 2020. This shows an addition of Rs436 billion during the ongoing fiscal year, of which Rs297 billion accounts for the second half.

The federal government had recently raised the power tariff by Rs1.95 per unit — in fulfillment of a condition for revival of the $6 billion IMF loan programme — expecting that the accumulation of the circular debt will slow down significantly. However, despite burdening the masses — especially the lifeline consumers for whom the Rs1.95 per unit raise in power tariff means electricity getting doubly expensive — the circular debt accumulation is not much different as the previous fiscal year (i.e. FY2019-20) had witnessed a Rs564 rise in this tricky debt.

Circular debt remains the biggest of the seven challenges facing the power sector in the country, according to study published late last year by Engro Energy Limited to identify problems in the power supply chain. If the study titled ‘Fixing Pakistan’s Power Sector’ is any reference, the circular debt will gallop to approximately Rs4.4 trillion by the year 2025.

On assuming power, the PTI government had vowed to plug this third-biggest fiscal hole in the economy through efficiency improvements. It had announced coming down hard on defaulters and power thieves to improve recovery of bills, besides putting the screws on authorities to curtail technical losses that remain far higher than the accepted limit. On the contrary, raising the power tariff appears to be the only trick available with the government’s financial wizards to deal with the monstrous debt.



Published in The Express Tribune, March 1st, 2021.

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