Expert suggests electricity market similar to PSX

Says it can resolve circular debt issue within an hour

KARACHI:

In a bid to resolve the daunting circular debt issue, businessmen have recommended the government to introduce an electricity market similar to the stock exchange where small investors could play their role.

Pakistan’s circular debt has ballooned to over Rs2 trillion and the government has to repay it. “Pakistan should set up electricity markets like the Pakistan Stock Exchange (PSX) where companies could get registered and raise financing through shares,” said Employers’ Federation of Pakistan (EFP) President Ismail Suttar while talking to The Express Tribune.

In an electricity market, power companies would sell electricity and distributors would buy directly from them, he elaborated. “Circular debt can end within an hour through this mechanism,” he emphasised.

“If power producers from the north offer a unit of electricity at Rs16 against Rs17 charged by a southern company, the investor will prefer a northern company over others,” he said.

Read more: MSCI proposes to downgrade Pakistan’s stock market

This was the reason such markets were called competitive electricity markets, he said. Uncompetitive and inefficient companies would struggle to operate alongside counterparts unlike the current situation, he said.

Circular debt accumulates due to three reasons - no payment of bills, electricity theft and line losses. In many areas of the country, people do not pay their electricity bills due to a host of reasons including poverty. Many government institutions also default on utility bill payments, which enhances the burden.

When customers fail to pay bills to distribution companies, it creates a liquidity crisis and power firms are unable to make payments to transmission companies which, in turn, default on oil and gas payments to suppliers.

Published in The Express Tribune, June 29^th, 2021.

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