The energy prices hikes that have been shelved for years are now ought to be adjusted under the IMF - the Fund wants to adjust the losses in one go while the government desires to phase it in 2-3 years. The blame is falling on the incumbents while the architects of the mess in the previous regime are cementing the fallacy on media. The common man is worried about the inflationary impact of higher energy rates.
The influencing journalists do not fully understand the complexities of the energy chain, and are inclined to take the 'tariff bomb' position as it sells. The urgent need is to call a spade a spade by having an informed discussion, based on numbers and facts. Let's talk about situation of discos and SNGPL here.
In June 2013, when the PMLN government assumed power, the accumulated losses of 10 discos were a mere Rs20 billion, and the year they left the toll increased to projected Rs296 billion. The accumulated losses of DISCOs in the PMLN last four years stood at Rs662 billion. Someone has to pay these someday. On the record, that is how circular debt builds. 
Within these discos - three companies-FESCO, LESCO and IESCO are deemed as better run companies and whenever there are talks of privatization, whoever is in power would like to cherry pick these. But the cherries are getting stale in the process. In FY13, in order mentioned above, the profit was Rs24 billion, Rs14 billion and Rs10 billion, respectively. The year they left, the losses were Rs40 billion, Rs42 billion and Rs27 billion, respectively.
The losses do not imply that these companies are badly run today. It is due to the difference between the actual cost and notified tariffs by NEPRA and in turn by the government. The difference between these usually come under discos tariff subsidies, based on the notified tariffs by NEPRA, but actual subsidy number could be different.
For example, in case of FESCO, in 2013, it sold 8.5 billion units while its net sales were Rs73 billion. This implied the tariff of Rs8.5/unit. The tariff increased to Rs10.9/unit in 2014 before coming down gradually to Rs8.4/unit in 2017, and it inched up to Rs9/unit in 2018. The government kept on passing the fuel price adjustment - due to low oil prices and better fuel mix, to consumers, but nothing on increasing capacity charge. The difference is resulting in losses the company is making today. .
In simple words, the combination of tariff subsidy to discos and their accumulated losses is becoming part of the circular debt, and IMF wants these to be passed on the consumers. The tariff subsidies to ten discos were Rs345 billion in FY13 - at the time oil prices averaged at $109/barrel. The subsidy fell as the oil prices came down, before inching up again in FY17 and FY18 - Rs171 billion and Rs196 billion, respectively.
The combined effect of tariff subsidy and losses of discos in FY18 stood at Rs492 billion at oil prices of $64/barrel and the combined effect was Rs365 billion in FY13 when the oil prices were $109/barrel. That is the pace of power sector circular debt. The numbers speak for the mess inherited by the current government.
In case of SNGPL, the gas development surcharge payable to government was Rs26 billion which turned into differential margin- receivable from government in FY15 and the situation continued till today. The differential margin stood at Rs109 billion was in Mar2018. This was the accumulated difference of price of the natural gas and the actual cost net of UFG allowances. This explains why gas prices have increased and should increase further.
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