Power sector circular debt swells to 2013 level

LAHORE: The power sector circular debt has become uncontrollable, swelling again to nearly 2013 level, thanks to the poor governance shown of managers at the helm of affairs who failed to curb energy losses and inefficiencies, sources said on Tuesday.

The incumbent government, which once was lauded for clearing Rs480 billion of circular debt after coming into power in 2013, is likely to leave behind almost the same amount for the next government. The pending payments to independent power producers (IPPs) snowballed into Rs439 billion up till February 15, 2017.

The power managers failed to implement the Circular Debt Management Plan, which was prepared in 2015 for capping the outstanding amount at a fairly manageable level, sources said. Owing to persistent failure in reducing power losses and enhancing recoveries, the circular debt is bound to pile up massively ahead of the next general elections, they claimed.

The huge amount of circular debt would not only haunt the next government or the 50 or so IPPs that failed to get their dues, but also ultimately the hapless consumers who might face electricity shortage in the coming summer due to the non-payments to power plants.

The government prepared a circular debt management plan in September 2015 to reduce it from Rs314 billion (as of end June 2015) to Rs212 billion by financial year ending June 30, 2018 (FY18), while keeping within the targets of 0.4 percent of GDP for subsidies to the power sector (about Rs128 billion) and four percent fiscal deficit.  It was envisaged that at the end of each month, the circular debt would be maintained below the cap of Rs314 billion. The circular debt management plan or capping mechanism includes reducing the increase of circular debt flow as well as the outstanding amount or stock.

Policy induced public sector power entity debt, including the Power Holding Company Limited (PHCL) debt was to be reduced from Rs335 billion to Rs220 billion by FY18.

The government planned to increase collection from public sector power companies by five percent by FY2018 and to reduce losses by 1.7 percent by FY18 through efficiency gains, privatisation, and private sector participation. Collection from government customers were to be rationalised and subsidies were to be paid on actual basis and paid according to schedule.

However, sources claimed, all such targets proved difficult, mainly due to half-hearted efforts and bad governance.

Consequently, the pending payments to IPPs reached Rs439 billion by the mid of February. The receivables of Kot Addu Power Company increased to Rs68.177 billion, the Hub Power Company’s due amount went up to Rs64.194 billion, Central Power Generation Company’s to Rs62.796 billion, Northern Power Generation Company’s Rs56.747 billion, Wapda’s outstanding amount went up to Rs23.853 billion, and Jamshoro Power Company’s due amount augmented to Rs18.288 billion.

These are just a few big receivables, while many other companies are also awaiting their dues. While failing to get their dues, several power generation companies had to opt for calling of sovereign guarantee in an attempt to get their money back. Some of the IPPs were to seek intervention of the apex court after the government defaulted on sovereign guarantee.

The IPPs later agreed to withdraw cases and resolved the dispute through arbitration envisaged under the power-purchase agreements as part of a deal with the Pakistan Muslim League-Nawaz (PML-N) government for payment of outstanding dues. Unfortunately, sources said, the situation was now reaching the same level, and added that the government has to also honour its sovereign guarantee to protect the investment in the power sector.

After repeated contact, Yunus Dagha, federal secretary water and power, refused to comment on various queries sent to him about the mounting circular debt and failure of the government to curb losses of the power sector.