The country's energy sector circular debt is about to touch Rs 1.9 trillion mark, as it reached Rs 1.8842 trillion on January 31, 2020, against the claim of Rs 1.782 trillion made by the Power Division on February 12, 2020, showing a growth of Rs 104 billion in one month.
Official documents seen by Business Recorder reveal that power sector's payables of Water and Power Development Authority (Wapda) stood at Rs 221.5 billion, Independent Power Producers (IPPs) Rs 696.38 billion, oil- Rs 75.22 billion, gas- Rs 82.27 billion and Power Holding Private Limited (PHPL)- Rs 804.05 billion.
These figures were recently been shared at the highest level, prior to the decision to keep electricity and gas tariffs on ice till June 30, 2020. It is unclear if International Monetary Fund (IMF) and other lenders likes World Bank and Asian Development Bank (ADB) were taken on board or not.
On the other hand, power sector's receivables were Rs 1.1783 trillion out of which federal government owes Rs 17.1 billion, Azad Jammu and Kashmir (AJ&K) Rs -127.1 billion, FATA - Rs 138.4 billion, Agri Balochistan - Rs 283 billion, K-Electric Rs 137-2 billion, provincial governments - Rs 62.3 billion, Discos' private consumers- Rs 508.9 billion and IPPs- Rs 4.4 billion. The total stock of payables including loans stood at Rs 804 billion.
According to Pakistan Electric Power Company (Pepco) circular debt occurs mainly due to non-availability of required funds to pay off the liabilities of power producers or in other words due to shortage of cash flow. The arrears and gap between revenue and cost are the major reasons for the circular debt and include: (i) delay and inadequate tariff determination by Nepra; (ii) delay in tariff notification by GoP; and (iii) excess losses and low recovery by Discos against Nepra's targets. In 2019, the projected gap was Rs 478 billion which the Power Ministry projects will be reduced to Rs 138 billion in 2020.
The power sector is facing a gap of Rs 87.8 billion during the first six months of current fiscal year despite the fact that the power sector charged consumers Rs 102 billion under the guise of Distribution Margin (DM) beyond their current costs that included paying debt service on old IPPs payments of Rs 600 billion. Pepco claims that it charged Rs 450 billion from consumers during the period 2015-2019.
The circular debt management plan 2019 intends to reduce the existing flows of Rs 465 billion per annum to less than Rs 75 billion per annum while maintaining the annual budgeted subsidy target of 0.4 per cent of GDP. The CD plan covers the period from FY 2019-2020 to FY 2022-2023 and describes the mechanism to address the circular debt issue in Pakistan's power sector and to control the flow of circular debt.
The plan also proposes some measures as to how to reduce the stock of circular debt. For selected public sector companies' collections are planned to increase by 5 per cent from FY 2020 and average losses are planned to be reduced to 16.01 percent from existing level of 17.7 percent through efficiency gains. Collection from government customers will be rationalized and subsidies will be on actual basis and paid according to schedule.
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