Circular debt posing a major threat to economy

The circular debt receivables of Pakistan State Oil have gone up to a staggering Rs 81 billion, courtesy Rs 1.8 billion added to this account every passing day, according to sources. Unfortunately, there seems to be no obvious evidence of circular debt going out of the system any time in the near future, despite the optimistic statements made by our finance minister.
A closer look tells us that the problem has its roots in lack of efficiency in the country's power system. Most of the generation and distribution companies have faulty billing collection systems and hefty line losses that eventually result in profound inefficiencies. At least 30 percent of the electricity, safely speaking, is being stolen and does not contribute towards bill receipts.
There is also a 27 percent differential between power tariffs and generation costs that is adding to the inefficiencies of power generation firms and the vicious cycle of circular debt. The grim situation goes on to explain why the companies such as PSO and OGDC, being on the receiving end of circular debt, failed to pay sizeable dividends in their recently announced financial results.
Not only is this minimising shareholder value (bear in mind that the government is their largest shareholder) but is also adding heavy financial charges to their books as these cash starved firms have to borrow extensively to meet their working capital requirements.
PSO for instance is paying around Rs 20 million a day on account of interest payments which would certainly lead to thinner bottom lines. So where does the solution lie? An easy answer would have been the evasion of circular debt, but that is as unlikely as Pakistan featuring the football world cup, in say 2020.
Another possible way out is to abolish the tariff differential and pass all the burden to end consumers, but even this would provide a partial solution as it is feared that increase in tariff would lead to more line losses. These line losses are, in fact, so pervasive that even if existing circular debt is fully paid off and tariff differential is completely removed, line losses will continue to haunt with hundreds of millions per day.
This means that line losses must be reduced so that discos are able to pay off their dues. The extent of unlikelihood might not be the same in this case, but it still seems a distant dream given the political nature of this problem and considering that it involves substantial investment in infrastructure. PSO is not the sole victim of circular debt, but being central to the problems, it catches most attention. More on how others are suffering from this crisis, later in the same column.