Loadshedding

Capital suggestion

April 23: At least 12 hours of loadshedding in Punjab’s rural areas and a minimum of six hours in Punjab’s urban areas. Fact 1: The installed power generation capacity stands at 24,906MW (as per the National Transmission and Distribution Company). Fact 2: Power generation on April 23 stood at 12,948MW. Fact 3: After line losses, around 10,000MW of electricity reached the consumers. Conclusion: On April 23, the government managed to utilise around 50 percent of the installed capacity.

Clearly, loadshedding is not a generation-capacity issue (the government is utilising around 50 percent of the installed capacity). To be sure, the current loadshedding is because of circular debt. And circular debt is all about line losses and less than the full recovery of the cost of generating electricity. Line loss is a governance issue. Recovery is also a governance issue. In effect, loadshedding is a governance issue.

The power sector has a ‘payment chain’ and circular debt arises “when one entity in the chain facing problems in its cash inflows holds back payments to its suppliers and creditors. Thus, problems in the cash inflow of one entity cascade down to other segments of the payment chain”. For instance, Wapda, facing problems in its cash inflows, holds back payments to Pakistan State Oil (PSO). In return, PSO holds back payments to refineries-and the refineries are then unable to pay their overseas suppliers.

Similarly, when the independent power producers (IPPs) don’t get paid for the electricity that they have sold, they hold back from paying PSO. Alarmingly, all of this runs into hundreds of billions of rupees. In 2008, the circular debt stood at Rs228 billion. By 2013, the same had reached Rs480 billion. In July 2013, the PML-N paid the entire Rs480 billion and pledged that circular debt will not be allowed to raise its ugly head ever again.

In March 2017, the IPPs claimed that circular debt had reached Rs414 billion. If history is any guide, the ‘payment chain’ somehow manages to accommodate the spectre of circular debt until it hits the magical figure of Rs400 billion. And beyond Rs400 billion lies 16 hours of loadshedding in rural areas and six hours of loadshedding in urban areas.

Lo and behold, the PML-N has a solution: build more power projects. That’s the equivalent of treating the stomach of a mental patient. The patient will never recover. Generation capacity is not the issue. Mis-governance is.

The circular debt, in essence, is the accumulation of all the unpaid power bills of Pakistan’s power sector. In March 2017, we discovered that there were 13 IPPs who had not been paid their multi-billion rupee bills. In March 2017, we discovered that 13 IPPs were producing electricity well below their capacity. Remember, even when an IPP is idle, the government must still pay the capacity charges.

Lo and behold, the PML-N has a solution: build more power projects. Imagine: the government has no money to fuel the existing power plants and the solution is to buy more power plants. That’s like I have two cars in my garage but no money to put petrol in them. And my solution: buy another car.

If history is any guide, when the system generates around 13,000MW a day, the system gives rise to a circular debt of around Rs400 billion in about four years. Yes, the government has plans of adding 7,680MW of additional generation capacity at the cost of $12.5 billion. Yes, the issue of circular debt is about to get worse. Yes, the patient is about to get worse. Yes, the government will have to cough out a hefty Rs414 billion. But the power sector will have to wait till just before the next election.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com.

Twitter: @saleemfarrukh