Ballooning circular debt

The issue of chronic circular debt is a major challenge of power sector which is halfheartedly addressed with raising power tariffs and shifting the financial burden to honest consumers who regularly pay their monthly electricity bills at inflated rates. The previous PML-N government paid a circular debt of Rs. 485 billion which was accumulated during the five years tenure of Pakistan People’s Party government in 2008-2013. But in the succeeding Pakistan Muslim League-Nawaz government in 2013-18, circular debt of power sector accumulated three times more, crossing the mark of 1 trillion. In other words the rate of electricity theft and bills default set a new record because of political expediency.

The Senate Special Committee on circular debt, the meeting, which was chaired by Senator Shibly Faraz, has emphasised that both government and people of the country should be sensitized about the circular debt of Rs. 566 billion and the problem must be addressed. Power Division of the Ministry of energy proposed that in order to eliminate the circular debt, it is necessary to frame policies especially those that pertains to power distribution companies. Additional Secretary of Power Division Waseem Mukhtar suggested that policies must be framed and board of directors of power distribution companies must comprise of professionals having no vested interest. He told the Senate Committee that power distribution companies have their own planning wings, which should come up with new ideas and solutions to address power sector’s woes. National Transmission and Distribution Company (NDTC) Managing Director told that for making progress in power transmission has become impossible as it involves huge cost. But keeping in view growing demand a plan has been put in place to upgrade the transmission lines.

The circular debt committee noted that Bannu, Dera Ismail Khan, Charsadda and Khyber Circle of Capital City of Peshawar are notorious for electricity theft. Bills recovery from these areas stands below 30 percent. Malakand Division is the top bills paying area. Consequently, Peshawar Electric Supply Company has suffered losses worth 38 billion because of electricity supply to power stealing areas.

The actual amount of circular debt is Rs. 1. 080 trillion and not Rs. 566 billion because the loans acquired by power sector worth Rs. 514 billion have been parked in Power Holding  Private Limited (PHPL). The solution of restructuring power distribution companies to address the problem of circular debt accumulation is not that simple and straight forward. Why the additional secretary of Power Division tried to mislead the Senate Special Committee on circular debt. This mess has been created by the political leadership by making cobweb thermal power generation agreement with private sector power producing companies and political expediency to adopt leniency towards influential political, industrial and business elites and government department to default on the electricity bills. These defaulters owed Rs. 850 billion to power distribution companies by June 30.

A former finance secretary Dr. Waqar Masood mischievously advised the previous PML-N government to shift the burden of defaulters to the honest consumers through tariff increase. The government enthusiastically implemented this proposal, but the recipe did not work and the amount of circular debt continued to swell as the rate of recovery of receivables did not improve despite the fact that power distribution companies offered the incentive to defaulters to make payments in instalments without paying the accumulated surcharge.

In the Pakistan People’s Party second tenure of government in 1993-96, power purchase agreements (PPAs) were made with Independent Power Producers (IPPs) the clauses of which were heavily loaded against the national interest, particularly the capacity charges clause. Because of the provision of this clause, the government is bound to pay for the idle thermal power generation capacity due to fuel shortage. These one sided agreements binds the federal government for fuel supply to IPPs through State Oil Corporation. Hence 40 percent component of over one trillion circular debt include capacity charges plus the amount of mark up on loans acquired by IPPs. What a bonanza for IPPs at the expense of honest consumers?

The PML-N government could arrange a paltry amount of Rs. 80 billion to pay for the massive circular debt. Ironically, NDTC lost a case regarding payment of Rs. 11 billion to nine IPPs last year in London Court of International arbitration (LCIA). As if this humiliation was not enough. NDTC approached London High Court against the LCIA verdict but hastily withdrew its case. However, the court passed on an order for payment of litigation cost amounting Rs. 66 million to the IPPs. It is now for the upcoming PTI government to engage intelligent legal experts to find out a legal solution to the mess created in the power sector by PPP and PML-N governments and demonstrate a strong political will to strictly deal with the defaulters to recover the receivables of Rs. 850 billions.


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