ISLAMABAD: Ministry of Finance (MoF) is required to provide additional a subsidy of Rs194 billion to the power sector for the current fiscal year, otherwise the shortfall of subsidy would be added to the rapidly increasing circular debt despite adjustment in power tariff.
In the budget for current fiscal year, ahead of Covid-19 pandemic, Rs140 billion was earmarked for power sector, which has now been estimated at Rs334 billion after taking into account the relief provided to consumers consequent to the breakout of coronavirus.
Sources in the MoF said that the power division has estimated a Rs516 billion subsidy for power sector for next fiscal year (2022), which is based on the relief provided to the consumers following the coronavirus pandemic.
The Power division has also estimated an amount of Rs334 billion for the current fiscal year against Rs140 billion earmarked in the budget – an amount higher by Rs184 billion.
An official said if additional subsidy was not provided to the power sector, it would contribute to an increase in the circular debt during the ongoing fiscal year despite adjustment in electricity tariff. The projected requirement of subsidy for the next fiscal year was based on the relief the government extended to consumers subsequent to the coronavirus pandemic.
The subsidy requirement has been estimated at Rs516 billion for the next fiscal year (2021-222) with Rs329 billion subsidy on electricity, Rs33 billion markup of PHPL debt as well as Rs80 billion for markup for IPPs and Rs74 billion for KE.
Also for the next fiscal year, a Rs535 billion subsidy requirement has been estimated with Rs329 billion power subsidy for electricity, Rs20 billion for markup of PHPL debt, Rs112 billion markup for IPPs and Rs74 billion for KE.
Circular debt is projected to soar to around Rs2.6 trillion by the end of current fiscal year whose breakup included; (i) DISCOs inefficiency losses Rs51 billion; and (ii) DISCOs “under-recoveries” Rs95 billion.
Additionally, unbudgeted subsidies Rs156 billion, independent power producers (IPPs) interest charges on delayed payment of Rs50 billion, PHPL markup Rs35 billion, pending generation cost Rs30 billion as well as non-payment by K-Electric are also contributing factors to the burgeoning circular debt.
Finance Ministry has recently told a meeting of the National Assembly Standing Committee on Finance that Rs225 billion per month was being added to the circular debt on account of 15 percent losses as well as a shortfall in the recovery of billed amounts and higher than allowed transmission and distribution losses by National Electric Power Regulatory Authority (Nepra). Additionally, Rs225 billion was being added to the circular debt on account of capacity payment. The MoF also admitted that the flow of circular debt was continuously increasing due to heavy payables of capacity charges and late payment surcharge.
Copyright Business Recorder, 2021
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