The country's economic managers have started showing uneasiness over the fiscal consequences of the phenomenal increase in power sector subsidies, which crossed Rs 50 billion mark in the first two months of the current fiscal year against Rs 134 billion budgeted for the entire year.
A senior Finance Ministry official said that if current trend persisted, power sector subsidies would amount to Rs 365 billion by the end of the year largely because of the failure of the Ministry of Water and Power to improve collection of power dues. The power sector's outstanding dues against federal and provincial government as well as the private sector surged to Rs 466 billion. The sector owes Pakistan State Oil (PSO) Rs 228 billion.
Another official said on condition of anonymity that political considerations and incompetence of the Ministry of Water and Power to improve the collection of the billed amount would have serious fiscal implications for the current year's budget. Power sector's recovery shortfall is steadily increasing and latest figures indicate that the gap between billed amount and collection has widened to Rs 85 billion, with lowest recovery by distribution companies in Khyber-Pakhtunkhwa.
The performance of distribution companies in other provinces is also very bleak and there is no measure in sight to bring about improvement in governance issues in the power sector. The government initially estimated 0.8 per cent of GDP as subsidies in the budget for 2011-12 which was subsequently revised upward to 2.5 per cent of GDP largely because of the increase in power sector subsidies as well as consolidation of electricity arrears of Rs 391 billion into debt.
Sources said that the Ministry of Water and Power's entire thrust was on seeking increase in power tariff, instead of taking measures to tackle problems of leakages and power thefts to improve the recovery of the billed amount. Distribution companies have reportedly started filing petitions with regulator, National Electric Power Regulator Authority (Nepra) for increase in power tariffs. Analysts say that the issue of circular debt would not be resolved without addressing problems of distribution and transmission losses and increase in power tariffs would lead to a rise in subsidies on account of inter-distribution company tariff differential.