Somehow the government has been unable to tackle the circular debt problem despite promises to the IMF and to the people of Pakistan. Now reportedly the government is trying to get the power to impose more surcharges in the consumer tariff. While the government’s economic managers negotiated with the IMF there was an understanding that the government would make efforts to contain the spiraling circular debt and also generate resources to fund future projects. The government is apparently unable to meet its financial obligations in the power sector and as a result the sector is marred by increasing circular debt and other problems. If the government imposes more surcharges, it is consumers who will be placed under ever more more pressure.
The circular debt has hiked to an enormous and unprecedented level of Rs2.4 trillion from just Rs0.7 trillion in June 2017. In two years, the circular debt jumped more than double to Rs1.6 trillion in June 2019, and after another two years now it stands at nearly Rs2.4 trillion. The twist about the new likely surcharge is that it may become part of expenditures that the distribution companies (discos) will charge as cost of service or part of distribution margin. If all discos have a uniform tariff based on their consolidated revenue requirements, the word ‘surcharge’ will have a new definition just to conceal the burden on consumers. The point is that consumers should not be expected to pay any sovereign guaranteed loans such as Sukuks or principal amounts of loans including interest payments.
If any surcharge becomes part of the tariff, it brings extra burden to the people, who are already reeling under the double whammy of the Covid-19 pandemic and reduced livelihood opportunities with surging inflation. Similarly, no surcharge is justified for funding any public-sector projects. Neither should the government transfer any financial obligation of the federal government regarding electric power services to the consumers. The 21-member standing committee on energy of the Power Division has suggested amendments to the Regulation of Generation, Transmission, and Distribution of Electric Power Act, 1997. There have rightly been concerns raised about this proposed amendment. All such alterations are the responsibility of the Council of Common Interests because all provinces will bear the brunt of any changes in such policies. It is a bad idea to go headlong into such major alterations in power sector tariffs; some way has to be found to contain the circular debt.