The Federal Ministry of Finance is expected to release around Rs 120 billion to settle the receivables of four state-owned entities (SOEs) in order to improve the electricity power generation situation in the country. Knowledgeable sources said that the sanction from Ministry of Finance to Pepco will be issued on Tuesday.
With advent of summer, the period of power shutdowns on a daily basis is on the rise. Amid growing anger and dismay, the Finance Ministry has taken up the circular debt issue to settle stock of debt for FY2010. The FY 2009 stock was settled after issuance of two bonds of Rs 216 billion and Rs 85 billion. It is claimed that the companies are current in terms of FY 2011 receivables.
On Saturday, MoF took up the circular debt issue. It is estimated that in an annual turnover of Rs 600-650 billion around Rs 50 to 60 billion would always remain in the pipeline. The centre point in the circular debt is Pepco which could not clear the dues of independent power producers as well as Wapda. Since GoP clears the dues of Pepco to Wapda from its own resources - IPPs are dependent on Pepco for payment. IPPs owe money to PSO for supply of furnace oil. Both OGDC and PPL have huge outstanding amounts on supply of gas for power production.
It is said that the stock of debt has built up on account of financial issues as well as administrative mismanagement, ie the losses and poor collection of receivables. The financial issue has two components: stock and flow. The increase in tariff and elimination of subsidies has addressed the issue of flow, leaving the stock issue to be addressed to unclog the system. Once the GoP pays out Rs 120 billion the circular debt issue would largely be addressed. And, if timely tariff adjustment on pass through basis is done then a built up of stock of debt once gain would be due to poor management in the distribution companies.