Circular debt to balloon ahead of 2018 election

LAHORE: The present regime is facing the same circular debt dilemma that was faced by the previous government, since for every 100 units produced and distributed it receives payment for 70 units, while the rest is lost to inefficiencies, theft, and non-recoveries.

The payment deficit increases with increase in production. For instance on production and supply of 20,000MW under the current corrupt and inefficient system, the government would receive payment for only 14,000 units.

This deficiency in payments runs into millions of rupees daily. That perhaps is the reason that the power managers continued with load shedding even during periods when enough capacity was available to cater to the total power demand in the country. The philosophy behind this mindset was that the less power produced, the lesser would be the losses.

Experts are deeply concerned that the power managers have been unable to bring efficiency in the system after the total clearance of circular debt in June 2013. This was more due to negligence, as the flaws that led to losses were pointed through an audit report prepared by a UK consultant firm on funding provided by the USAID.

The audit report pointed out the way power fuel was being pilfered and how the generators became inefficient because of failure to carry out maintenance and stock needed spares. The other losses were also identified. The power managers were simply required to plug these loopholes.

Moreover, another source of short recoveries was the non-payment of power dues by the consumers, both from public and private sectors. The non-recovery of dues from the private sector consumers clearly indicates the lack of will on the part of the government to take action against powerful segments of the society.

Common consumers on the other hand were not spared for even a month if they defaulted on their power dues. Power theft is the main contributor to the distribution losses.

This menace has in fact slightly increased during the past four years. This again points towards the incompetence of power sector managers.

Four years time is sufficient for improving things for any competent manager, particularly when the factors contributing to the losses are known.

As the affairs stand now, the expected new addition of 7,000 to 10,000MW of power in the system in the next 12 months would create a lot of difficulties for the government to pay for the power produced. Per unit cost of most of these is 9.2 US cents.

At the current level of 70 percent recovery, the deficit per unit would be 2.9 cents that would further enlarge the circular debt.

With a year to go for election, the government would order activating all available power generation as it has promised to eliminate load shedding by the end of its tenure. This will balloon the power sector circular debt much beyond sustainable levels.

The solution to power sector problem lies in privatisation of distribution companies. The private sector owners would eliminate the inefficiencies, theft and recovery of dues simply because that would be the only path for survival.

A new phenomenon is progressing as some larger industrial concerns are opting for low cost power by establishing their own power plants. They are opting out of the grid supply.

The state run distribution companies are fast losing their valued industrial consumers, who were not only good pay masters but were also not involved in any power theft. The public power system is now supplying larger quantity of electricity to the power thieves than three years back.

If things were not improved, this would further put pressure on the finances of the government and increase the circular debt.

Our politicians should revisit the power policies of the country. We should take cue from neighbouring Iran which produces 75,000MW against 23,000MW in Pakistan.

Government should allow the private sector to produce, transmit, and distribute power in selected localities, and industrial estates around the country to ensure sustained and quality supplies.