Power receivables

According to a Business Recorder exclusive, power sector receivables have crossed the historic Rs 600 billion mark leading to severe liquidity issues in the sector that are, once again, disabling Pakistan State Oil (PSO) from opening letters of credit. The usual practice in Pakistan to deal with this liquidity crisis has been for the PSO management to send an urgent letter to the Ministry of Water and Power and the Ministry of Finance requesting for the immediate release of funds to ensure procurement of a fuel consignment from abroad.
Another usual practice of dealing with the cash crisis due to rising receivables in the power sector is through raising the electricity rates though in recent months the government has been able to raise taxes on some petroleum products to a whopping 37 percent (around 20 percent higher than the 17 percent tax on other products) without raising tariffs thereby containing a negative fallout on public opinion because of a steady decline in the international oil prices. The PPP-led coalition government as well as the incumbent government also borrowed from the market to retire the circular debt; however, that too has merely upped the tariffs as the interest due is being billed to the paying consumers. Thus the holding company set up for the purpose during the tenure of Shaukat Tarin as well as the elimination of the debt through borrowing by Federal Finance Minister Ishaq Dar on 30th June 2013 accounts for higher interest payment component in our electricity bills.
It is unfortunate that this practice is continuing to this day and the reason is the failure of the two elected governments (in 2008 and 2013) to evolve a political consensus whereby all agree to deduct public sector receivables at source. Or, in other words, the Finance Ministry is not yet empowered by the provincial governments to cut the provincial public sector entities' bills due from their budgeted allocations. It is critical for the federal and provincial governments to come to an agreement on this and also to reconcile the receivables as the Sindh government has accused the power sector of over-billing. The constitutionally stipulated forum for resolving such issues is the Council of Common Interests (CCI) and unfortunately provinces where the PML-N does not have its government are increasingly challenging other fuel-related decisions of the government, including the price at which LNG is being imported as there has been little transparency in this regard.
Rising receivables is an endemic problem of Pakistan's energy sector and it is extremely unfortunate that the focus of the present government does not appear to be on resolving this issue, evident from the fact that receivables are now the highest ever in our history. Instead, the government appears to be focused on enhancing the country's generational capacity. While one can fully support the government for setting up the solar power plant and focusing on developing renewable energy sources as well as the more traditional and considerably cheap sources of electricity in this country, namely hydel, yet there is a need to deal with rising receivables - a systemic power sector problem. Unless the circular debt issue is resolved and the billed amount actually paid our energy sector woes are unlikely to be resolved.
We need to recognise that the cost of doing business in this country is quite high regardless of the cost of fuel. Therefore, the return on investment (ROI) sought by investors is also high. Domestic interest rates are also on higher side when compared with other countries in the region. As a consequence, the tariff determined by the regulator, Nepra, is also on the high side. Country risk in a war-torn economy is also taken into consideration by the lenders. All these factors feed into the tariff. This adverse consequence, though, be checked by adoption of an open bidding and transparent process which allows for efficient procurement and engineering to compete to fill the demand-supply gap instead of having an across-the-board tariff for various fuels. However, experts in various fields - both external and internal - need to combine their expertise to come up with a better policy than the one that we have seen thus far. But then who is bothered among the decision-makers to 'bell the cat'; since the poor consumers are made to suffer high tariff for electric power.
Ministry for Water and Power is currently engaged in switching off electricity in those areas where unpaid bills are over 80 percent; however, this practice appears to be focused on poor or middle class areas as private sector receivables have been rising over time. Private sector, including industry, owed Rs 402 billion during the first five months of current fiscal year and the payable amount stood at Rs 355.6 billion, indicating that the unpaid amount rose by Rs 46.4 billion in just five months.
To conclude, the gap between the suppressed demand and supply in spite of additional generation during the past two years is not only fuelling household discontent but is also a major impediment to growth accounting for Pakistan's lowest growth rate in the region, barring war-torn Afghanistan. Thus enhancing capacity must be followed by enhancing the transmission system (former Secretary Water and Power had informed a parliamentary panel that our transmission system has the capacity for only 15000MW). Last but not least, the government must not show any complacency towards the systemic issue of rising receivables in the sector.