Unhonoured pledges

The incumbent government has not been able to address the challenge of circular debt in any effective and meaningful manner. It has, however, managed to isolate it from intensive media focus. Financial bailout packages continue to be dished out to sustain the vulnerable public sector entities with a view to averting their ultimate collapse.
Upon taking power, the new state policymakers made a pledge to the nation that circular debt would be resolved and power utility companies privatised to achieve better performance. They also vowed that power load-shedding would be eliminated as early as possible. All are inter-related and none of the pledges was honoured. The cascade effect of the three continues to hurt country's economy. The core issue is the pathetic performance of power generation and power distribution companies in the public sector and the questionable conduct of Independent Power Producers (IPPs). Both are primarily responsible for circular debt.
The power distribution companies in the public sector (Discos) face the challenge of receivables and line losses, which is a combination of technical and commercial losses.
Power sector's receivables are reported to have soared to Rs 726.19 billion as of December 2016 as compared to Rs 684.06 billion on June 30, 2016, showing an increase of 6 per cent in just six months. This is one of the steepest increases. It is also reported that Discos' collection has registered a 9.5 percent decline to 486.26 billion as of December 31, 2016 against billing of Rs 543.70 billion during the first six months of the current fiscal year.
A similar trend has been observed among provinces where the volume of receivables against provinces has increased to 197.19 billion as of December 31, 2016 as compared to Rs 169.09 billion on June 30, 2016.
The receivables against Punjab have increased to Rs 2.43 billion as compared to Rs 1.84 billion, which is an increase of 24 percent whereas receivables against KPK government were 20.21 billion by end December as compared to Rs 19.41 billion on June 30, 2016, recording an increase of 4 percent. This includes Rs 18.6 billion assessed for KPK consumers for the period September 5, 2018 to September 15, 2010 on account of tariff differential after the withdrawal of KPK petition from Peshawar High Court (PHC). The assessed amount has not been passed on to consumers. The payment of these receivables has been linked to the mark-up on NHP arrears payable to KPK government as proposed by the province.
Likewise, the receivables against Sindh were Rs 70.91 billion as of December 31, 2016 compared to Rs 73.44 billion on June 30, 2016. The Economic Co-ordination Committee (ECC) of the Cabinet recently approved the write-off of Rs 50 billion to Sindh government.
The amount of receivables against Balochistan increased to Rs 5.53 billion as of December 31, 2016 against Rs 4.94 billion on June 30, 2016 which is an increase of 12 percent.
AJ&K receivables escalated to Rs 72.94 billion as compared to Rs 65.47 billion, recording an increase of 4.9 percent while the share of federal government in it was Rs 0.43 billion because of continuous non-payment by the Azad Kashmir government.
The amount of receivables against the private sector increased to Rs 494.2 billion from Rs 468.7 billion, recording an increase of 5.5 percent during this period. The reason reported to be that the Discos failed to expedite recovery from the private sector.
The government receivables from Karachi Electric (KE) and the counter claim of KE of its receivables from the entities in the Sindh government, notably, Karachi Water Supply Board, are always a subject of dispute. KE is in the process of being handed over by Abraaj Group of the UAE to M/s Shanghai Electric of China. KE is reported to owe Rs 52.78 billion to the government against the 650MW electricity it continues to draw from the national grid. The volume of receivables against federal government has increased to Rs 7.71 billion as of December 31, 2016 against Rs 4 billion on June 30, 2016. Federal government comprises federal government departments, local bodies under federal government, autonomous bodies under federal government and water and power sector. KE has lately been under media focus for overbilling its consumers.
The financial health of the utility companies in the public sector has shown a lot of deterioration. The incumbent government enjoyed an ample time of four years to set this ailing sector right through restructuring or privatisation and good governance. Unfortunately, however, the government has done nothing to alter a situation to make it more fair.
Much-hyped privatisation of public sector power generation and power distribution companies fell victim to its own scepticism and political expediencies. Its sell-off plans for other loss-making entities such as PIA and Pakistan Steel also failed or suffered because of similar reasons.
The government appears to have been checkmated by political considerations in view of the 2018 elections; it is no longer ready to honour its commitment in relation to privatisation of public sector loss-making units. It wants to keep delaying something that must be done; it is just procrastinating.
(The writer is former President, Oversees Investors Chamber of Commerce and Industry)