Power sector debt surges 14pc to Rs2.635tr in 7 months

ISLAMABAD: The power sector debt ballooned to Rs2.635 trillion between July 2023 and January 2024, a 14 percent increase from the previous year, data from the Power Division showed.

The sector's total debt stock was Rs2.31 trillion at the end of the fiscal year 2022-23 in June. Despite government efforts to retire some debt of Independent Power Producers (IPPs) and increase the power base tariff, the results have been discouraging. Instead of declining, the debt grew by Rs46.42 billion (or $166 million) each month.

During this period, a much-hyped drive against power theft, championed by the caretaker government, fell short of its intended impact, as evidenced by the unabated growth of circular debt. This trend indicates escalating inefficiencies in the energy system, particularly in power generation, distribution, and dues collections.

Meanwhile, payables to power producers surged by Rs326 billion to Rs1.76 trillion during these seven months. State-owned generation companies (GENCOs) also saw their payables to fuel suppliers reach Rs111 billion in the same period. Debt parked in Power Holding Limited (PHL) remained at Rs765 billion, unchanged from the end of June 2023.

The inefficiencies of power distribution companies (DISCOs) have emerged as a significant burden on the financial health of the power sector, primarily due to high losses and low bill recoveries. These shortcomings in power transmission and distribution impede the sustainable provision of energy services, resulting in elevated energy prices and increased business costs.

From July to January 2023-24, DISCOs incurred losses and inefficiencies, along with non-recoveries of bills, contributing Rs284 billion to the circular debt. This accounted for over 87% of the total addition of Rs325 billion to the overall debt stock. DISCOs’ losses and inefficiencies amounted to Rs86 billion, while low bill recoveries added Rs198 billion during this period.

The breakdown of circular debt additions further shows that Rs72 billion was due to interest payments to power producers on delayed payments, with the government currently owing Rs1.76 trillion to these generators. The debt in Power Holding Limited, which stands at Rs765 billion, did not see additional interest payments added to the circular debt, as it is being serviced by power consumers through a per-unit debt servicing surcharge.

Additionally, Rs214 billion was added to the circular debt due to delays in recovering generation costs through quarterly and monthly fuel charges adjustments. An extra Rs11 billion was added due to non-payment by K-Electric. The government noted that Rs356.9 billion is receivable from K-Electric as of January 2024, pending resolution of a subsidy dispute.