Power sector’s circular debt swells to Rs385bln

KARACHI: Power sector’s circular debt swelled to Rs385 billion as of March 31, a brokerage said on Monday, calling for a government’s immediate action to settle receivables of energy chain in order to avert electricity crisis during the sweltering summer. 

Analyst Kumail Chevelwalla at Taurus Securities Limited said this amount doesn’t include payments owed to gas companies. Total payables to independent power producers (IPPs) stood at Rs107 billion, while payment to Pakistan State Oil amounted to Rs56 billion.

“Regardless of improved recovery (94 percent versus 89 percent in 2015) and low international oil prices (a drastic drop of 48 percent from 2013), debt is still mounting towards its previous level,” Chevelwalla said. 

In 2013, the incumbent government had settled the circular debt of Rs441 billion in one fell swoop.  The resurging debt has, however, created liquidity crunch for IPPs, contributing more than 40 percent to energy mix.  

“Going forward, if the circular debt remains unresolved the liquidity situation in the energy chain would worsen further on account of higher demand during peak summer and rising furnace oil prices (up 27 percent for year to date),” Chevelwalla added. “We believe the government will soon resolve this issue in order to improve power generation capacity.”

He said IPPs have always knocked the door of banks for working capital financing, but their borrowing capacity has its own limits and is likely to exhaust soon. The short-term borrowing for Hubco surged almost twofold to Rs23.64 billion in December 2016, while that of Kapco rose to Rs46 billion from Rs36 billion in a year.