Vicious circle of circular debt

Contrary to the claims of federal government to have lowered the rate of increase in the piling circular debt from Rs.39 billion to Rs.10 billion per month, its burden is fast rising. Federal minister for Power Division, Umer Ayub Khan had claimed in a press conference two months ago that circular debt is on downward trajectory and it will be completely wiped out by December 2020. But ground reality tells a different story.

The present government has added Rs.565 billion to the swelled circular debt in the past 17 months including the addition of Rs.100 billion in the past six months. Previous government had left the liability of Rs.1.2 trillion circular debts which has now bulged to Rs.17 trillion. The causes are well known which include idle capacity payment arrears of IPPs, massive default of electricity bills by influential running and new defaulters and heavy line losses by rag-tag transmission and distribution system.

The shady power purchase agreements with IPPs had been made by the PPP government in 1994 and it was widely believed that present government will make efforts like President Musharraf government to find a way out for either tariff reduction or renegotiate the agreements and incorporate sunset clause in the national interest. But the present government is appeasing more the IPPs owners as compared with previous governments. It explains the reason of delay being made for making agreement to purchase hydel power of NeelumJehlum power plant at Rs.5.58 per unit whereas government pays Rs.18 per unit on the purchase of thermal electricity from IPPs.

The consumers are being burdened excessively every month with heavy doses of fuel price adjustment charges. Time is not far off that the faulty recipe of fuel price adjustment will turn out a proverbial last straw on camel back for all categories of consumers. It is high time that purchase agreements with IPPs are renegotiated, strong action is taken for the recovery of power sector receivables from willful running defaulters and transmission and distribution system is upgraded for which Asian Development Bank had approved a concessionary loan of $4.5 billion in November. 2016. The commitment charges are being accrued on this loan as procedural requirements for its disbursement have not been met by the relevant ministries.