Changes in $ rate, CPI and fuel mix: Circular debt management plan recalibrated

ISLAMABAD: The Power Division has recalibrated Circular Debt Management Plan (CDMP) 2021-23 due to changes in dollar rate, Consumer Price Index (CPI), variation in fuel mix and not meeting commitments on the time agreed with the international financial institution with respect to increase in electricity tariff.

For instance, the government had given commitment to IMF and World Bank in writing that Rs 1.39 per unit hike in base tariff will be notified on June 1, 2021 but it was increased in November 2021.

In addition, an increase of Rs 2.20 per unit in base tariff was due in July 2021 on the basis of Discos’ tariff petitions which has not been honoured. Now, it is expected that base tariff will be increased up to Paisa 75 per unit in January or February next year. Another increase has also been envisaged in May when some new Thar based coal project will start commercial operations.

The sources said, reforms in power sector subsidy were also due in June 2021, whose first phase was notified in October 2021.

“Circular debt, projected to be in the negative territory during this fiscal year if the proposed measures had been implemented remains very much in the positive realm,” the sources continued.

Govt eyes further Rs2/unit hike in base power tariff

The circular debt reached Rs 2.419 trillion during July- October 2021-22 as compared to Rs 2.310 trillion in the corresponding period of fiscal year 2020-21.

Power Division has already paid over Rs 200 billion to Independent Power Producers (IPPs) established under pre-1994 Generation Policy, 1994 Generation Policy and 2015. However, Rs 54 billion due to be paid to IPPs established under Power Policy 2002 are yet to be cleared.

The main reason for the delay in payment to IPPs of 2002 was the issue of Nishat Chunian Power Limited (NCPL). The CCoE has approved withholding Rs8.36 billion of the company till finalisation of arbitration on excess profit whereas remaining amount of Rs 14.619 billion will be paid to the power company.

The Power Division has sought approval of ECC for payment of Rs 14,619 billion to NCPL, the sources said, adding that as this approval is accorded and the ECC decision is ratified by the Cabinet, payment of first installment to IPPs of 2002 will also be cleared. The process will take two weeks.

“The amounts paid to the IPPs as per agreements will be reduced from the total amount of circular debt,” the sources continued.

Energy sector’s circular debt soars to Rs2.28trn

Power Division argues that with implementation on the CDMP, the volume of subsidy will further reduce from the existing level.

The previous CDMP was meant for 2020-23, but the projections of 2021-23 recalibrated plan will be for two financial years.

“The Power Division updates the Cabinet on circular debt each month. Projections have changed substantially in December 2021 as compared to March 2021, which have now been made part of the recalibrated plan,” the sources maintained.

Power Division, sources said, had sent its summary to the Cabinet Division to bring on the agenda of Cabinet Committee on Energy (CCoE) but Cabinet Division returned the summary saying that it has examined the summary and observed that in the light of rule 18(4) read with rule 23(4) of the Rules of Business, 1973, views/comments of Finance Division have not been obtained, which were essential for better appreciation of the case by the CCoE.

Copyright Business Recorder, 2021