Circular debt fixation

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The enigma of power sector circular debt is no less than a white elephant. Year after year, the government's piecemeal measures to get away with it force it further down a quagmire of debt. The root cause is an inflated and insane deal with the Independent Power Producers (IPPs) that has put the successive governments – as well as the general masses who are made to pay by their blood and sweat – in a quandary. The power sector circular debt today sits at Rs2.4 trillion, and is growing. There is, nonetheless, an emergency payment hovering over the heads to the tune of Rs1.5 trillion in principal amounts to eliminate the debt stock. Thus, the government's decision to borrow Rs1.25 trillion from the commercial banks is another recipe to stay afloat and does not come to guarantee a long-term solution.

The new loan sought at less than 11% interest rate is said to be 5% cheaper than the existing liquidity facility that the government ensures for making timely payments for energy purchases. While the endeavour is to log the new funds under Central Power Purchasing Agency (CPPA), and not be part of the public debt, the bottom line of income and expenses makes it a perpetual debt in the shadows. In order to strike a balance, it is said that IPPs will be convinced to waive the interest payments amounting to Rs272 billion in return for taking upfront full payments. The intention is to lower the soaring power tariff for domestic and industrial consumers, by coming up with a rebate on bills, and to gradually eliminate the threat of circular debt to the power sector viability.

The fixation, however, is in the form of IMF's resistance that is refusing to vet the deal. The Fund is also against lowering of power tariffs, making exports and production come to a naught. It is a catch-22 situation and there isn't much room for the government as it struggles to live with IPPs and a plummeting economy. The way out of the mess is to renegotiate the power purchase deal with the IPPs, privatise the distribution companies and cut down on pilferage and institutional corruption.