Govt fails to cap circular debt

ISLAMABAD: Pakistan has breached the commitment given to IMF for scaling down the circular debt to Rs234.930 billion in the current financial year, but it has surged up to whopping Rs 421 billion.

The authorities in Islamabad dealing with power sector have also failed to honour the guarantee also given to the Fund that the loans borrowed for power sector parked in Power Holding Company Limited (PHPL) will be limited to Rs272.500 billion, but the PHPL loans and liabilities have gone up to the staggering Rs401 billion.

If the amount of Rs421 billion that Pakistan Electric Power Company (Pepco) owes to pay to IPPs, PSO (Pakistan State Oil) and other entities such as Wapda hydel is added to the loans and liabilities of worth Rs401 billion borrowed power sector, then the factual circular debt stands at Rs822 billion in to to, the top official reveals to The News.

“Yes, the breaches have been done but these occurred on account of late quarterly indexation in the wake of later tariff determination by NEPRA owing to which Rs69 billion in the head of Net hydel profit has not been shown in the end consumer tariff, but very much present in the invoicing side meaning by that in the generation tariff,” Joint secretary (Power) Zarghum Eshaq Khan.

“As soon as the Nept Hydel profit of Rs69 billion is paid by consumers, the circular debt will be in limits as per the commitments given to IMF.” However, when asked about the issue of loans build-up in PHPL, Mr Khan said that loans have amounted to Rs347 billion, but the insiders privy to the secret information insist that the amount of loans parked in PHPL has risen to Rs401 billion.

It is pertinent to mention that the government had given the undertaking to IMF in September 2015 under which an ambitious Managing a Circular Debt Plan was enforced. The government of Pakistan had given the commitment to IMF that under a circular debt management plan it will slice down the circular debt (CD) from Rs. 314 billion (as of end June 2015) to Rs. 212 billion by Financial Year Ending June 30, 2018 (FY2018) while keeping within the targets of 0.4% of GDP for subsidies to the power sector (about Rs. 128 billion) and 4% fiscal deficit. At the end of each month, the CD will be maintained below the cap of Rs. 314 billion.

According to the Managing a circular debt plan that was agreed upon with IMF of which copy is also available with The News, the circular debt management plan (or capping mechanism) will include reducing the increase of CD (circular debt) flow as well as the stock (outstanding amount). Policy induced public sector power entity debt including Power Holding Company Limited (PHCL) debt will be reduced from Rs 335 billion to Rs 220 billion by FY2018. Public sector power companies’ collections are planned to increase by 5% by FY2018 and losses are planned to reduce by 1.7% by FY2018 through efficiency gains, privatization, and private sector participation. Collection from government customers will be rationalized and subsidies will be on actual basis and paid according to schedule. The government will continue to take measures to rationalize the tariff which covers all cost including debt servicing and ensure sufficient budgetary provision of subsidies for Baluchistan tube-wells, FATA and AJK consumers.

As per the plan, the year on year debt stock (FY 2015 to 2018) was finalized with the Fund management. As per the year on year debt stock (FY 2015 to 2018), the circular debt stood at Rs313.618 billion in FY2015 which was to lower at Rs248.318 billion in FY16 and was to be at Rs234.930 billion in FY17 and was further to be reduced to Rs211, 649 billion in financial 2018. However, in FY17 which is the ongoing fiscal, the circular has swooped upward to Rs421 billion showing that the bad governance still reigns supreme in power sector.

Likewise the document of Managing Circular Debt Plan also unfolds that reduction plan of the loans borrowed by power sector parked in PHPL saying, “The loans’ amount parked in PHPL stood at Rs335 billion in FY15 which was to stay at Rs335 billion in FY16, but this was to reduced toRs272.500 billion in FY17 and this was to further squeezed to Rs220 billion in FY18. However, Mr Khan says that volume of borrowed loans parked in PHPL has increased to Rs347 billion, but sources say they have ballooned up to Rs401 billion.”

Khan said that Nepra has accommodated the government’s many demands which include the increase of permissible losses in the tariff up to 16.2 percent against the actual losses of 16.97 percent. The regulator has also approved the write-offs amounting to billions of rupees. More importantly, the regulator has also passed the capacity charges amounting to Rs115.179 billion on to consumers, but it did not accept the demand of making tariff based on the actual recovery as Nepra has maintained that tariff will continue to be carved out at 100 percent recovery.