Power in debt

One report after the other has continued to paint a troubling scenario as far as Pakistan’s power sector is concerned. We have already heard about losses increasing three-fold and more power outages expected. Now it’s the turn of the ever-infamous circular debt. The news – or non-news really – is not good. Circular debt has hit a record Rs922 billion. The Ministry of Finance has submitted before parliament that circular debt in the power sector stands at Rs472.7 billion as of November last year. However, it has neatly chosen to ignore the fact that another Rs450 billion remains parked with the Power Holding Company. This debt must also be included in the total figures. That makes the total circular debt nearly double what the government is attempting to put on paper. The impact of this debt is also being felt by consumers through numerous tariffs; and that’s not even counting the long-term impact when it does have to be paid off. These accounting tricks are part of the reason the government continues to fail to address the underlying causes behind the debt.

The need to address the circular debt problem systematically has continued to be highlighted over and over again – almost to the extent of having become boring for many. But one needs to continue to talk about this in the greater public interest. It is easy for issues like circular debt to get hidden behind the fanfare of new power projects. But the circular debt situation leaves the entire power sector vulnerable to collapse. The government remains in debt of the entire chain of power supply, which can trigger much wider economic problems in the country. What is clearer, however, is that the government’s announcement that it would reduce circular debt to Rs205 billion by the middle of this year will not be fulfilled; in fact, it will be missed by hundreds of billions. What appears to be most dangerous is the absence of any plan at all to deal with the debt situation in the power sector. Moreover, the losses in the power sector have tripled despite the fact that the overall recoveries have improved from 88 percent in 2014 to 93 percent in 2017. This raises questions about the power ministry’s decision to blame non-paying consumers for this situation. At a seminar on Monday, Leghari again seemed to downplay the circular debt but insisting that the only way the government could manage the Rs150 billion in losses each year was through power outages. This might be true in the current situation but the reality is that the power sector needs a cohesive plan to save it from becoming known as a perpetual white elephant. The government needs to come up with it soon.