Advisor to the Prime Minister on Finance Shaukat Tarin has stated that the Ministry of Finance has set a six-month deadline for the elimination of the 150 billion rupee circular debt of Pakistan Electric Power Company (Pepco). He admitted that the circular debt had triggered load shedding as oil companies had either reduced or suspended furnace oil supply to power producers that ultimately increased the duration of load shedding to crisis proportions.
This admission lends credence to the views of a growing number of government detractors that the sheer scale of load shedding is not entirely attributable to the failure of the former government to invest in power generation as claimed by many a cabinet member, including Shaukat Tain; but that around 40 percent of the load shedding could have been reduced if the present government had turned its focus on Pepco's burgeoning circular debt. In this context it is gratifying that the Advisor to the Prime Minister on Finance has finally turned his attention towards eliminating this problem.
The Letter of Intent submitted by the government of Pakistan to the International Monetary Fund as a prerequisite for the approval of the 7.6 billion dollar Stand-By Arrangement in November last year specifically stated that "the government will prepare by end March 2009, a plan for eliminating the inter-corporate circular debt within the fiscal deficit target." This effectively implied a commitment by the government that it would not provide support from its budgetary resources to meet the circular debt and that other measures would have to be taken.
Be that as it may Tarin has already announced that 16 billion rupees, an amount small enough not likely to impact on the fiscal deficit, has already been released to ease load shedding and, additionally, administrative measures have led to an increased generation of 1400 to 1500 MW. The remaining debt will be dealt with, according to Tarin, through issuance of Term Finance Certificates of 75 billion rupees while another 75 billion rupees would be generated through sale of assets of power companies thereby meeting the objective of eliminating inter-corporate debt within the next six months.
The fact that Tarin enunciated the plan for elimination of the circular debt well in advance of the end March deadline and revealed that the government had decided to allow the Ministry of Finance to handle the debt related issues of power companies must be lauded.
The Advisor to the Prime Minister on Finance also stated that power generation to forestall any load shedding beyond 2010 would include (i) public-private partnership; (ii) developing cheaper resources of power generation such as hydel, coal, wind, renewable energy, and solar, and (iii) through imports. One would hope that the government does not deviate from this plan as the energy shortage has led to social unrest, lower productivity levels, higher unemployment and inflation.