The power sector circular debt has again reached Rs 414 billion as on February 15, 2017. The new figures of circular debt emerged two weeks after the Economic Co-ordination Committee (ECC) of the Cabinet headed by Finance Minister Ishaq Dar, appreciated the efforts of the Ministry of Water and Power for successful management of the power sector issues and for remarkable performance in the power sector during the last two years.
Analysts of the power sector maintain that "good" performance is not appropriate as Rs 93 billion of tariff differential was not paid to the consumers in 2015-16 due to non notification of Discos tariffs; likewise an amount of Rs 60 billion has not been passed on to the consumers during the last seven months of the current fiscal year. The Ministry of Water and Power has received subsidy of Rs 118 billion from the federal budget.
Official documents reveal that Ministry of Water and Power at a meeting of the ECC on February 13, 2017 claimed that a large part of the subsidy payment, was reduced through imposition of Tariff Rational Surcharges on high end consumers. There has been some reconciliation between the Ministry of Water and Power and the Ministry of Finance over some subsidy claims and arrears which are expected to be settled in coming months.
Ministry of Water and Power also informed the meeting that in order to provide an interim relief and to keep the circular debt within manageable limits, it was agreed between both the Ministries seek a loan of Rs 30 billion from commercial banks. The amount would be utilised for the purposes of funding the repayment liabilities of Discos. Ministry of Finance would pay interest on Rs 30 billion loan.
According to the Independent Power Producers (IPPs) Advisory Council, the total verified and audited amounts overdue to the power sector (excluding Wapda hydel) stood at PKR 414 billion.
Out of this total, the verified, and audited overdue portion of IPPs (some of the amount due for over a year), was Rs 254 billion. IPPAC argues that the issue of higher GST rate on fuels versus lower GST rate on electricity is not being addressed resulting in a rapid build-up of GST refunds which are not being paid by FBR. Implications of Sales Tax being applied to fixed charges by FBR which will eventually get passed on to end consumers are not even being discussed, the IPPAC added.
The First In First Out (FIFO) method for payments, as specified in agreements, is being violated deliberately. Arbitrations under Dispute Resolution process in the agreements are being deliberately blocked. Other violations of agreed provisions in the contracts are being done regularly. In a previous arbitration, NTDC/GoP has stated that rather than shutting down plants for lack of fuel, IPPs should exercise their legal remedies and call on GoP guarantees.
"IPPS are being forced to once again call upon GoP guarantees to collect their audited and verified past due amounts in order to ensure that they can keep supplying power," IPPAC added. The private power generating companies further argue that despite repeated efforts by the industry, the GoP has so far not engaged with it to find solutions to these issues, and the industry remains ready to resolve the issues amicably.