The pandora of circular debt

Circular debt had been an ever-existing and always-growing phenomenon in the country over the past several decades. The case of Pakistan’s Power sector circular debt has been a tale of institutional weaknesses, a lack of financial sustainability, poor governance as well as political interference in administrative affairs in the country. The issue had been mounted multiple times and successive governments resolved the problem through ad-hoc measures including the provision of funds by the government, increasing consumers’ energy bills, or even allocation of subsidies to the fuel importers and power generating companies in the country. Yet, this curse repeats again and again while the state and the public were the ultimate losers in this recurrent fiasco. Historically, no government ever tried to diagnose the real reasons for the core issue and fix it permanently while top brass of power generating and distributing companies always attempted to pass their term smoothly by shifting the backlog to their predecessors.

According to the reports, the Country’s power sector normally owes Rs. 450 billion to Rs. 500 billion in circular debt annually while the current upsurge in energy prices and the rupee’s steep backslide in the international currency market have likely to add further in such a colossal amount. Presently, Pakistan’s circular debt had reached over Rs. 2.44 trillion. The Asian Development Bank (ADB) issued a research study regarding different factors contributing to circular debt in Pakistan, which revealed that DESCO’s inefficiency cost 31%, unbudgeted subsidies usually offered by the government forms 18%, delayed tariff adjustment caused 35% losses while financial cost of fuel or power generation constitutes 16% share of the annual circular debt in the country. Unfortunately, this vicious cycle repeated unhinderedly over the past decades while no institution had ever made a sincere effort to minimize the volume of the problem through timely action including procurement of energy fuel, adjustment of prices, reduction in line losses, recovery of bills, and payment of dues to other participating entities so this menace could be fixed at its early stage.

Ironically, all stakeholders including political leadership, IPPs, and government agencies ranging from WAPDA, K-Elect, DESCOs, NTDC, NEPRA, the Central Power Purchasing Agency (CPPA) and OGRA, as well as the power division and the finance ministry are equally involved in making up for this upheaval. Historically, no elected government ever hold public institutions accountable for their poor performance and negligence and usually paid huge amounts from the national exchequer to resolve the issue, while this policy led to a reoccurrence of circular debt issue, promoted corruption and non-compliance with the agenda by the relevant entities. In fact, expecting a miracle without undertaking surgery for the cancer is awful and pathetic and the government must resolve the issue permanently at the institutional level. The government and public institutions need to implement strict measures to keep a regular balance of their inflows and outflows, while public entities must be free from all kinds of political intimidation in taking their policy and operational decisions so the nation comes out of this unending economic fiasco forever.