Pakistan's power sector has reportedly swallowed Rs 2,000 billion during last seven years and the responsibility rests with two successive governments.
Well-informed sources told Business Recorder that Planning Commission, in a report yet to be unveiled, noted that power sector circular debt increased by 938 per cent in seven years: Rs 872 billion by June 30, 2012 from Rs 84 billion in 2005 due to two governments' incompetence (Musharraf and PPP-led coalition), which is 4 per cent of country's Gross Domestic Product (GDP). Ministry of Water and Power claims that circular debt is not more than Rs 400 billion.
"Circular debt at the end of fiscal year 2011 was estimated to be Rs 537 billion but it was Rs 872 billion on June 30, 2012," the sources said, adding that if this continues unabated, it will precipitate socio-economic chaos in the country as it will prevent effective operation of new investment in the power sector.
Finance Ministry has time and again expressed its anger over the performance of the power sector claiming that it has injected Rs 1.4 trillion in the system in four and half years without any evident improvement in its performance. According to the Planning Commission, the primary causes of circular debt include poor governance, delays in tariff determination by an adequately empowered regulator compounded by interference and delay in notification by the GoP; a fuel price methodology that delays the infusion of cash to the power sector; poor revenue collection by Discos', payment by the Finance Ministry on Tariff Differential Subsidy (TDS) and Karachi Electric Supply Company (KESC) which rewards the incompetent, contract payments, prolonged stays on fuel price adjustments granted by the courts and transmission and distribution loss improvements that cannot be achieved based on the regulator's targets in the tariff.
Planning Commission argues that the government - provided fuel subsidy has led to direct government allocation of fuel among consuming sectors of the economy, thus further distorting energy markets and contributing to shortages of fuel to generate power and add to the circular debt problem.
"Allocations, of course, are mainly based on political considerations rather than on economic benefits. Subsidies are not allocated appropriately, benefits extend to those beyond the targeted customs sector," the sources quoted Planning Commission as saying in the yet to be unveiled report.
Delays in tariff determination and notification contributed Rs 72 billion to the circular debt for 2012. Tariff determinations for all 9 Discos were delayed for nine months and it took an additional month for the notification to be published. Consumer tariffs in 2011-12 were largely based on 2010-11 values when the actual fuel cost for 2012 was Rs 52 billion higher than the previous year. Without new tariff values from Nepra and the GoP, the Discos had no chance to receive the necessary cash required to meet their monthly wholesale power cost.
Poor revenue collection contributed Rs 86.92 billion to the circular debt in 2012. Five of the Discos had good collection rates while the other four ie Hesco, Sepco, Pesco and Qesco contributed Rs 72.14 billion or 83 per cent to the total uncollected amount. The current level of debt prevents sector entities from obtaining funding to support improvement in management and system operations and from attracting investment needed to support sector expansion and improved services.
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