LAHORE: Bulk share of thermal generation in the energy mix, poor revenue collection by the distribution companies and withdrawal of subsidies by the government under the pressure of IMF are major contributors to ever-rising circular debt, said Pakistan Electric Power Company (Pepco) sources.
It may be noted that the circular debt has risen to Rs 2.150 trillion as of June 30, 2020 against Rs 1.612 trillion on June 30, 2019. The sources said two of the three largest circular debt components, i.e., subsidies and rate re-evaluation delays, together totalling over 50 percent of the circular debt, were the direct result of policy choices made by the Pakistan Peoples Party (PPP) administration in the early 1990s and reaffirmed by every subsequent government, civilian or military. The use of relatively small and inefficient fuel-oil plants means that the per-kilowatt-hour cost of electricity is far higher than it would be if hydroelectric or even gas-fired plants were used, they added.
According to the sources, the three largest components of the Rs 234 billion increase in circular debt in fiscal year 2012-2013 were subsidy payment arrears of Rs 106 billion, tariff rate increase delays of Rs 72 billon, and non-payment of Rs 55 billion by private customers. While the three largest components of the total circular debt of Rs 872 billion in fiscal year 2012-2013 were non-collection of Rs 330 billion (with Rs 197 billion unpaid bills in the private sector and Rs 133 billion in unpaid bills from government entities) from consumers, the unreimbursed subsidy of Rs 293 billion to low-income consumers, and tariff rate increase delays of Rs 72 billion.
The sources said the Nawaz Sharif government had cleared Rs 480 billion of the circular debt by July 2013. This was essentially the amount due the IPPs and Gencos from the government. They said the then government had also announced the conversion of four fuel-oil, fired plants, including that of HUBCO, the largest IPP, to coal by 2015. However, since the Sharif government did not review, much less reverse, the flawed policy that created the circular debt in the first place, three months later the government's portion of the circular debt was back up to Rs 157 billion.
Despite the settlement of the circular debt, they said, there had been no appreciable decrease in load-shedding in much of the country, and it seems clear that the Sharif government had no effective solution for the load-shedding crisis and the massive financial cost of subsidizing electricity. The Sharif administration's continued adherence to a deeply flawed energy policy was more understandable if one could realize that some key Sharif advisers on energy issues were owning several IPPs each and benefitting from the situation.
Sources said unfortunately the Pakistan Tehreek-e-Insaf (PTI) government has also not taken concrete steps to change the situation over the last two years.
Copyright Business Recorder, 2020