The interim government is currently exploring two significant options inresponse to the persistent challenges posed by circular debt and linelosses within the power sector. One of these options involves theprivatization of both power generation companies (Gencos) and distributioncompanies (Discos). The alternative approach being considered is thetransfer of management control of these entities to private organizationsfor a substantial duration, ranging from 20 to 25 years.
This shift in policy direction is primarily motivated by the urgent need toaddress the mounting circular debt crisis in the power sector. The circulardebt has swelled to an alarming Rs2.3 trillion, representing a grave threatto the sector’s long-term sustainability. Consequently, the government isopting to step away from direct involvement in the day-to-day businessoperations of these entities.
It’s noteworthy that the circular debt issue isn’t limited to the powersector alone. The gas sector is also grappling with its own substantialcircular debt, which has surged to Rs2.8 trillion. This sum includes Rs2.1trillion in principal amounts and up to Rs700 billion in late paymentsurcharges. When these staggering figures from the gas and power sectorsare combined, they amount to a colossal Rs5.1 trillion, equivalent to over$17 billion.
Caretaker Minister for Energy, Muhammad Ali, recently provided insight intothe government’s plans. He disclosed that, aside from the 10 state-rundistribution companies, the government is contemplating the transfer ofmanagement responsibilities for four power generation plants under along-term concession agreement. This arrangement would involve entrustingprivate entities with the management of these plants for a potential periodof up to 25 years, allowing for investments and infrastructureimprovements. Additionally, discussions are underway with the World Bank’sInternational Finance Corporation (IFC) for potential long-term concessionagreements.
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In summary, the interim government is adopting a new strategic approach toaddress the challenges posed by circular debt and line losses in the powersector. Whether through privatization or long-term concession agreements,the aim is to alleviate financial burdens, encourage investments, andenhance the overall sustainability of these vital energy entities. Thescale of the circular debt issue necessitates innovative solutions toensure the continued provision of reliable electricity to the nation.
