Gas sector circular debt soars to Rs2,800bn, worries govt functionaries

ISLAMABAD: The monster of circular debt in the gas sector that soared to Rs2,800 billion has attracted the attention of the top decision-makers to resolve this chronic issue.

The government to this effect has hired KPMG -- a well-known reputed audit firm with the mandate to make a doable, and acceptable to IMF, circular debt management plan (CDMP) to get rid of this menace once and for all.

The overall energy sector circular debt stands at Rs5 trillion (Rs2.8 trillion in the gas sector and Rs2.3 trillion in the power sector).

Officials privy to the development said that out of Rs2,800 billion gas sector circular debt, Rs800 billion has been added in the head of Late Payment Surcharge (LPS). “We have hired KPMG to make the CDPM upon which the government would act and erase this problem.” The Sui gas companies -- Sui Northern and Sui Southern are also facing a shortfall of Rs1,300 billion mainly because of no hike in gas tariff during the 2013-2020 period. The LNG diversion cost to the domestic sector is now also causing an increase in circular debt.

After the imposition of off-the-grid levy on Rs3,500 per MMBtu gas rate for the export sector, the actual gas price for the export-oriented industry has increased to Rs4,291 per MMBtu which is equal to $15.38 per MMBtu. So the export sector has reduced the use of the gas by 50 percent in the north and 25 percent in the south of the country, resulting in more diversion of this costly gas to the domestic sector owing to which the gas sector circular debt will increase manifold.

As far as circular debt in the power sector is concerned, the government has managed to make a deal with 18 commercial banks for a loan of Rs1,275 billion. Under the deal struck with Central Power Purchase Agency (CPPA), the state-owned entity, banks would provide fresh loan of Rs617 billion at 10.50-11 percent mark-up rate based on KIBOR-0.2, which will be paid in 6 years’ time by electricity consumers through Debt Service Surgery (DSS). The consumers will pay Rs3.23 per unit in the bills as DSS.

The commercial banks would deduct the DSS amount at source at the time of paying the electricity bills by consumers. “At source deduction on paying bills will improve the risk profile of the banks.”