Circular debt again

One of the first actions taken by the PML-N government after its victory in the 2013 elections was to pay off the Rs480 billion circular debt in the power industry in one fell swoop. The party’s promise that it would be a more responsible steward of the energy sector was a major contributor to its landslide victory. While clearing the circular debt ensured that it would start with a clean slate, it also had to be accompanied by reform to ensure the vicious cycle – where the government is not capable of collecting electricity bills and then cannot pay power generating companies who in turn have their supply of power cut off by oil and gas suppliers – does not return with a vengeance. It was unable to do so and now the circular debt stands at close to Rs400 billion once again. The measures the government did take have proved to be ineffective. It has tried to reduce transmission and distribution losses so that power isn’t wasted but any improvements have been marginal. One estimate claims that the government only recovers the cost of seven units for every 10 units of electricity consumed. It even imposed eight-hour blackouts daily to reduce our power consumption but that too has not been sufficient. Bill recovery is scarcely any better than it was during the PPP government, with the largest delinquents being government agencies and private industry.

That the circular debt has risen to as high as it is shows that the government’s performance has not been as ideal as it has portrayed. It has enjoyed advantages that were not available to previous governments, such as the record low international prices of oil for much of its tenure. The PML-N has also been able to, on the orders of the IMF, gradually reduce electricity subsidies. The inability of the government to check electricity theft and reduce losses means that even power distribution companies like Lesco and Fesco, which were previously profitable, are now running at a loss. This means they have been unable to pay IPPs who are now trying to have their dues cleared. Meanwhile, the government has been boasting of all the commitments and investment it has secured from China for future power generation. What it hasn’t done is explain how an increase in power generation will be sustainable when it only adds to mounting circular debt. Just as the PPP did with the PML-N, the current government will be leaving this ticking time bomb for the next government to handle.