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July 6, 2013

Has PM picked the right man to handle the circular debt?

July 6, 2013


ISLAMABAD: The top PML-N government expert on power sector has the international repute for planning and strategy but has no experience of the gigantic task assigned to him by Prime Minister Nawaz Sharif.
While the power sector, including Discos and Gencos, are presently run by temporary appointees on look-after basis, and the secretary water and power too has the first exposure in the energy sector’ the PM’s adviser on power sector Musadiq Malik too is a learner and not an expert in the area.
This situation raises the fundamental question whether the government that has just paid from taxpayers’ money Rs320 billion to contol the genie of circular debt, would succeed in meeting the challenge of power shortage without letting the circular debt to re-emerge.
Sources in the power sector without disputing the government’s decision to settle the issue of circular debt by making one-time payment of all dues - over Rs500 billion - told The News that it is just step one, which would bear the desired results only if the other nine steps are promptly but rightly taken.
It is said that Nawaz Sharif government has to raise the power tariff by Rs6.70 per unit or to subsidise the same amount to stop the immediate resurrection of the genie of circular debt that had risen to over Rs500 billion.
Only recently the government had paid Rs320 billion while the remaining amount would be paid in a few weeks time to get rid of the circular debt, according to sources,
it would re-emerge sooner rather than later if the follow-up actions including structural reforms are not taken.
These sources explained that the government has to pay Rs3 billion daily for fuel to produce power. In one year this figure reaches Rs1000 billion as against the collection of Rs650 billion, which means a shortfall of Rs350 billion.
The cost of power is 14.70 per unit but the government’s notified tariff is Rs8.89 per unit, which means per unit loss of Rs5.81. It is said that

since the recovery is 89 per cent, which in fact further reduces the power price as receivable by the government to Rs8 per unit.
Now after the payment of the circular debt, the government continues to collect
Rs8 per unit (including the impact of losses) as against the actual cost of Rs14.70 per unit.The solution demands immediate increase in the tariff rate or subsidy to cover the losses till such time that the line losses and power theft are curbed, recoveries are improved, power houses are shifted from oil to coal and gas besides immediately getting the working capital of IPPs by banks to ensure that the IPPs maintain fuel storage of 25 days.
For doing all this, it is said the real burden in on Musadiq Malik, adviser to the PM on power sector. It is said that although he is adviser he has never worked in the sector before. He is a pharmacist by profession and has done his PhD in planning and strategy.
His only experience in the power sector is 3-month stint as caretaker minister for water and power. He is, however, said to be good in planning and strategy. It is said that he is part of the team that has prepared Bahrain’s strategy for industrialisation for the next fifty years besides serving as consultant to Saudi Arabia on strategy on industrialisation and employment.




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