As provincial governments refuse to pay their electricity bills, the federal government is expected to simply deduct the amount outstanding – an estimated Rs83 billion – from their share of the federal divisible pool.
According to the ‘Circular Debt Mitigation Plan’ proposed before the cabinet-level committee on energy, made available to The Express Tribune, the federal government has set a deadline of September 10 to recover about Rs210 billion from thousands of people and organisations who have outstanding power bills, about 40% of which comes from the provincial governments and their various departments.
The initiative is part of the government’s efforts to help the energy sector recover from its crippling financial crisis that has resulted in over Rs400 billion in liabilities across several firms.
Of all the provincial governments, Sindh has the highest outstanding dues, accounting for Rs39 billion, or nearly half of the amount owed by all provincial governments. The next biggest defaulter is Khyber-Pakhtunkhwa, with Rs19 billion outstanding, followed by Balochistan (Rs9.8 billion), Azad Jammu and Kashmir (Rs9.5 billion) and Punjab (Rs5.4 billion). Among the private sector entities with unpaid electricity bills, about Rs80 billion is owed by people and organisations that have habitually not paid their bills and still have their power connections intact. Another Rs28 billion is owed by entities that have had their power connections permanently shut down, while the remaining Rs28 billion is owed by other consumers.
The energy committee is currently mulling several different options on how to clear the backlog of unpaid bills – some of which go back decades – in order to help revitalise the financial health of the energy sector.
Among the measures currently on the table is the imposition of a 14% surcharge on electricity bills, which is expected to raise Rs100 billion over the coming year. The government is also planning on levying new taxes on compressed natural gas (CNG), liquefied petroleum gas (LPG), and an increase in the rate of the gas development surcharge.
“However, the best option is to recover dues from those who have not paid their bills,” said one official familiar with the deliberations.
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.
(Read: Circular debt resolution linked to power sector reforms)
As a result of the debts – and the government’s refusal to let the energy companies raise prices for fear of 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.
In 2009, former finance minister Shaukat Tarin used an innovative method to lessen the circular debt: he issued bonds that were then used to pay down the power companies, which in turn paid the oil marketing companies, who then paid the refineries, who then paid the oil importing companies and the oil and gas exploration companies, many of which are state-owned, who then paid out the government a dividend that recovered at least some of the money that the government had borrowed in the first place.
Published in The Express Tribune, August 16th, 2011.