Pakistan’s circular debt reaches highest levels of its history
ISLAMABAD, MAR 15 (DNA) – Pakistan’s circular debt has reached the unprecedented levels, doubling from the levels back in 2013.
The highest figure suggested is Rs 922 billion for total circular debt in the country’s energy chain, including the Rs 450 parked separately with the Power Holding Private Limited (PHPL) that has the purpose of raising funds from commercial banks. Recently, the Ministry of Power Division has reported that circular debt has increased to over Rs 750 billion, which is still a significant jump from 2013 levels.
Recall that back in 2013, when PML-N government took charge, it decided to eliminate this menace in just one go. As a result, the government ended up paying Rs 480 billion for the debt retirement. It was well-known that the relief from the move would be temporary, and hence the dragon started lifting its head in no time, reaching the levels it has not seen before.
In Asian Development Bank’s recently published assessment of $7 billion loan approved in 2005 for the country’s energy sector to shape its future line of action, circular debt continues to be the top power sector challenge.
The report titled, “Sector Assistance Programme Evaluation (SAPE) for the Pakistan Power Sector” highlights that there has been limited action in addressing the underlying causes of the circular debt, which has kept investments at less than desired levels until 2017.
One underlying factor for the rise in circular debt is a lack of focus on the transmission and distribution aspect of power supply amid the country’s increased focus on adding capacities. The losses in the transmission and distribution system have remained there for a long time.
Other causes for the circular debt menace as highlighted by ADB in its earlier supplementary documents still remain unaddressed at large.
These include weak governance, delayed release of Tariff Differential Subsidy by the Finance Ministry, issues in revenue collection by the distribution companies that still remain in some areas, delays in tariff determination by Nepra and liquidity issues due to the fuel-price methodology.
Where the last formula of ad hoc payment to the sector didn’t pan out right, the government has reportedly worked out a new circular debt settlement plan where initially around Rs 80 billion will be cleared by raising funds from commercial banks. Beware, the debt servicing cost is planned to be recovered from the electricity customers.
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