Circular matters

Pakistan’s circular debt could soon hit the Rs1 trillion mark. This will be another low for the current government’s claims that it would and could fix the power sector. The decision to park almost Rs434 billion in debt in Power Holding Private Limited (PHPL) after taking over power in 2013 has been seen as a colossal mistake. Independent analysts had warned then too against such a move but the government was not to be deterred in the short-termism that has since continued to dominate its policymaking in the power sector. Instead of sorting the debt problem in the power sector, the government has continued to commission new power plants, which, while adding to the power supply, have only added more debt to the power grid. In the current setup, the more power the government generates, the more debt accumulates in the power sector. There is no magical way to avoid the Rs1 trillion mark.

Arrears in the system have increased by staggering amounts. In 2013, IPPs were owed Rs74.9 billion. This amount now stands at Rs343.2 billion. This is just one indicator of the gross mismanagement that has led to this situation. And the government is set to take another Rs80 billion loan from commercial banks to pay off some of the arrears of IPPs and PSO. One of the consequences of that is that the interest on the power sector loans – to the amount of Rs19.2 billion – is borne by consumers. As it stands, consumers pay around Rs194.4 billion under the head of system losses, which themselves stand at a staggering Rs360 billion. Clogging the power grid with debt does not benefit anyone. The situation could have improved had the focus remained on improving the transmission lines, focusing on bill recoveries and purging the system of existing inefficiencies. However, bill recoveries have also fallen to 11 percent.

In terms of receivables, there are a number of key areas from where the government is owed over Rs720 billion, including the AJK government, Balochistan’s agricultural tubewells and Karachi Electric. The Balochistan tubewell installations seem to be another failed developmental policy for the region; but the privatised K-Electric not paying its due share should not be tolerated – and could serve as another reminder of the dangers of further privatisation within the electricity grid. If these receivables alone were to be recovered, the circular debt issue could be brought down. The real need, though, is a coherent power sector reform policy.