Rs1600 Billion Circular Debt: Power Sector’s Achilles Heel

BE2C2 Report – Circular debt generally arises out power line losses (due to theft and inefficiencies in the distribution system) and inability to recover the total amounts billed to consumers by power companies. This leads to a financial gap because of which the power sector fails to discharge its obligations towards fuel suppliers and banks. This in turn badly affects both the energy and financial sectors.

In 2018-2019: the Peshawar Electric Supply Company had line losses of 36.2pc; Tribal Electric Supply Company had 13.3pc; Sukkur Electric Power Company 41.3pc; Hyderabad Electric Supply Company 33.6pc; Quetta Electric Supply Company 21.8pc; Multan Electric Power Company 17.5pc; Lahore Electric Supply Company 14.5pc; Gujranwala Electric Power Company 11.1pc; Faisalabad Electric Supply Company 9.8pc; and Islamabad Electricity Supply Company 7.9pc.

There are around 42 independent power producers (IPPs) in the country, which produce 1320MW electricity.

As a result, the overall line losses of distribution companies (Discos) in the public sector stood at 18.3 per cent this current fiscal year (July 2018-June 2019), with Sukkur Electric Power Company having the most inefficient distribution, and the Islamabad Electricity Supply Company as the most efficient firm.

Still, the circular debt has been accumulating- in fact climbing up over a decade now; line losses persist despite rise in power generation- thanks to China Pakistan Economic Corridor’s early harvest projects countrywide. What has changed though, we now hear more about circular debt than load-shedding.

While load-shedding created myriad problems for the public and the economy, circular debt continues to over-stress the government’s revenue cycle: In 2008, when the PPP-led government took civilian power, circular debt stood st Rs228 billion. By May 2013, it mushroomed to Rs500 billion. When PML-N government came in power (July 2013), it paid off Rs480 billion of the circular debt to the Independent Power Producers (IPPs). However, by the end of its five year rule (in 2018), circular debt climbed up again to Rs1100 billion.

During the next 200+ days of the PTI-led government, the debt shot up to Rs1600 billion, and continues to stack up at the rate of approx Rs2 billion daily, that’s Rs60 billion monthly. All this despite some reduction in line losses, and more electricity generation as a result of more power plants (fossil and non-fossil) having gone on line due to CPEC, and the energy basket having been adjusted to offset oil import bills- for example LNG.

Observers believe the circular debt climb-up is primarily due to lack of professional and financial (debt) management, while other issues such as line losses, theft, bribery, corruption, etc., are not seriously considered “an issue”.

Back in January 2018, the Petroleum ministry said no workable solution has been found besides providing temporary relief. That’s more than a decade later after circular debt became a national issue- now almost a national security matter.

Some experts believe circular debt has morphed into a more serious matter than being considered- more than trade deficit, balance of account, or eternal debt issue singly or combined.

(BE2C2 Report is a data journalism initiative of Irshad Salim Associates, a New Jersey, USA, based consulting firm in association with BE2C2 in Pakistan