Rigid circular debt

Rigid circular debt

The monthly flow to swelling circular debt was Rs.38 billion in previous government. The present government decided to implement a comprehensive policy of power sector reforms the major component of which was bringing down circular debt addition of Rs.12 billion per month and completely wiping it out by December, 2020. But the target seems pretty difficult to be achieved. The Asian Development Bank (ADB) report states that partial success has been made to tackle the hydra-headed monster of power sector circular debt as monthly addition to this accumulated debt of 2 trillion stands Rs.21 billion in the current fiscal year.

Special Assistant to the Prime Minister on Petroleum and Natural Resources, Nadeem Babar had claimed in August that circular debt had come down to single digit. But on the contrary, Minister for Power Omer Ayub Khan said in a press conference in October circular debt flow has been reduced to Rs.10-12 billion. The primary factor of bulging circular debt is allowing inflated tariff to IPPs plus payment of idle capacity charges to them and rising transmission and distribution losses. The secondary factor is the default of monthly bills by influential people and government departments in addition to massive pilferage.

The private thermal power producers, who were the blue eyed guys in PPP and PML-N governments, do have tremendous clout in the present government as well. They refuse to switch over from very expensive diesel and furnace oil to gas and allow the audit of generation cost.  They enjoy the bonanza of 50 percent capacity charges. The government has stopped the purchase of cheap wind power from the power plants of Jhimpir Wind Power Corridor perhaps to meet the electricity purchase obligation to IPPs. The off-take of wind power by Dispatch Company of WAPDA remains six days a week which produce low cost electricity of 980 megawatts per day. The major benefit of wind power from private sector is that the purchase agreement does not include the capacity trap as included in the shady and free from time limit power purchase agreements with thermal power producers. Because of these agreements government has no option but to pay annually Rs.850 billion annually on account of capacity charges which amounts to invalid charge on the national exchequer.

Now as per the conditions imposed by multilateral donor agencies, government has to abandon its prerogative of executive control of issuing notifications of electricity tariff hike. For this purpose NEPRA Act shall be amended to allow automatic electricity price increase by the regulator itself on quarterly basis. In one year Rs. 470 billion have been taken out from the pockets of all categories of consumers, who honestly pay their bills.

The proposed alternate energy policy envisage power generation of 10000 megawatt from renewable  sources and stopping purchase of wind power run counter to it. It is also in conflict with the Prime Minister vision of power sector reforms aimed at adding 30 percent power generation from renewable sources such as hydel and wind by 2030. The objective behind it is to substantially lower the electricity tariff and tackle the chronic issue of circular debt. The debt can be brought down substantially only when a cutoff date is inserted in power purchase agreements with IPPs, political clout of the owners of these plants is curtailed, and strong action is taken against the running and permanent defaulters.

Posted in