Vicious circle

Part of the PML-N’s ambitious domestic agenda was to privatise profitable power distribution companies like Lesco and Fesco, which would raise immediate funds for the cash-strapped government and, theoretically, create efficiencies both in the power infrastructure and bill collection. That agenda has stalled for the simple reason that the Discos are no longer profitable. Under the PML-N government, recovery of outstanding dues by the Discos has been so abysmal that they are now owed nearly Rs730 billion, out of which Rs335 billion is owed by private-sector defaulters. When one keeps in mind that the circular debt stands at just over Rs400 billion, were the Discos able to collect the money owed to them, it would help wipe off a large portion of the debt. The federal and provincial governments are among the largest defaulters. For too long, government agencies have refused to pay their bills, knowing that no one dare turn off their power supply. They also argue that since they haven’t been paid the dues owed to them, they in turn cannot pay the Discos, who then are unable to pay their own bills – thus perpetuating the vicious cycle of the circular debt. On top of that, the government owes IPPs a sum approaching Rs250 billion, which it is reluctant to pay since it does not have the cash in hand and is fearful of adding to the budget deficit. The IPPs are now considering invoking the sovereign guarantees that are a part of their power purchase agreements with the government. Should they do so, this would cause grave and irreparable damage to the reputation of the state.

Equally alarming is the incidence of default in the power sector. Large businesses and industries have never paid their electricity and gas bills because they know their political connections act as a shield. This nexus between politics and the private sector will need to be broken to make the country solvent again and ensure that everyone pays what they are owed. Ideally, the Discos would be able to cut off the electricity supply of any private sector entity that is chronically defaulting and make repayment of the amount a condition of restoring power. Laws could also be passed enabling the state to seize any property associated with defaulters and auction it off to raise the money they are owed. But there appears to be little will to do so and it is the rest of the country that suffers. With summer now upon us, loadshedding has been increased to seven hours in urban areas and 14 hours in rural areas. This is the price we have to pay when the government does not pay its own bills and does not collect them from defaulters. The only way out – before the people of the country come out into the streets in the summer – is to serve the interests of the public and somehow look into fixing the rising circular debt problems.