Ministry of Water and Power by redefining circular debt refuses to acknowledge that the country's energy sector circular debt stock has touched Rs 800 billion. Zargham Eshaq Khan, Joint Secretary (Power Finance) who deals with power sector's financial issues in close liaison with Finance Ministry's Economic Reforms Unit (ERU), told Business Recorder on Tuesday that circular debt is defined as unpaid amount between companies and has nothing to do with loans whether these loans are on the books of PHPL or the companies' own books.
"Whatever amount is on the books of PHPL is called loan, not circular debt. If loan is taken as circular debt then power sector circular debt is around Rs 1.3 trillion. This is not the case. Things are just mixed up," he added. Asked what was the stock of circular debt, he claimed Rs 395 billion; however, his claim has not been verified from independent sources. Debt stock in PHPL books is around Rs 450 billion.
According to official figures, circular debt stock was Rs 401 billion as on April 28, 2017 of which gas payables were Rs 11.092 billion, oil Rs 99.023 billion, IPPs/ WPPO Rs 166.998 billion, IPPs/CPPA Rs 59.666 billion, nuclear Rs 11.172 billion, Wapda hydel Rs 37.361 billion and PHPL debt servicing at Rs 16.582 billion.
Power sector's circular debt issue aggravated a couple of months ago when IPPs claimed that as of May 15, 2017, the payables to 21 member IPPs are around Rs 191 billion due to which the industry was once again reaching a point where cash flow crises were beginning to affect operations. However, Finance Ministry released Rs 50 billion immediately to clear some payments of IPPs and PSO.
According to the Asian Development Bank (ADB), broadly circular debt describes the amount of payments held back by an entity having cash flow problems from suppliers and creditors, so that it can push its cash flow problems down to other segments of the supply chain. In connection with Pakistan's power sector, circular debt is the cash flow shortfall incurred by the sector with the Central Power Purchasing Agency (CPPA).
The power sector's circular debt problem occurs when there is a chronic shortfall between inflows from collections of electricity sales by power Distribution Companies (Discos) from private sector customers and from federal, provincial and local government customers; and tariff differential subsidies (TDS) claimed by the Discos and K-Electric against the government to cover the difference between the tariff charged to customers and the cost-recovery tariff determined by National Electric Power Regulatory Authority (NEPRA).
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