ISLAMABAD – 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 inthe country’s energy chain, including the Rs 450 parked separately with thePower Holding Private Limited (PHPL) that has the purpose of raising fundsfrom commercial banks. Recently, the Ministry of Power Division hasreported that circular debt has increased to over Rs 750 billion, which isstill a significant jump from 2013 levels.
Recall that back in 2013, when PML-N government took charge, it decided toeliminate this menace in just one go. As a result, the government ended uppaying Rs 480 billion for the debt retirement. It was well-known that therelief from the move would be temporary, and hence the dragon startedlifting its head in no time, reaching the levels it has not seen before.
In Asian Development Bank’s recently published assessment of $7 billionloan approved in 2005 for the country’s energy sector to shape its futureline of action, circular debt continues to be the top power sectorchallenge. The report titled, “Sector Assistance Programme Evaluation(SAPE) for the Pakistan Power Sector” highlights that there has beenlimited action in addressing the underlying causes of the circular debt,which has kept investments at less than desired levels until 2017. Oneunderlying factor for the rise in circular debt is a lack of focus on thetransmission and distribution aspect of power supply amid the country’sincreased focus on adding capacities. The losses in the transmission anddistribution system have remained there for a long time.
Other causes for the circular debt menace as highlighted by ADB in itsearlier supplementary documents still remain unaddressed at large. Theseinclude weak governance, delayed release of Tariff Differential Subsidy bythe Finance Ministry, issues in revenue collection by the distributioncompanies that still remain in some areas, delays in tariff determinationby Nepra and liquidity issues due to the fuel-price methodology.
Where the last formula of ad hoc payment to the sector didn’t pan outright, the government has reportedly worked out a new circular debtsettlement plan where initially around Rs 80 billion will be cleared byraising funds from commercial banks. Beware, the debt servicing cost isplanned to be recovered from the electricity customers.