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Power sector circular debt surges to Rs1.9 trillion

IMF mission is said to have also expressed its sheer dismay over the massive increase stock of circular debt

By Khalid Mustafa
February 12, 2020

ISLAMABAD: The power sector circular debt continues to haunt Pakistan’s economy as it has swelled to almost Rs1.9 trillion as the payables have hit Rs990 billion mark and loans and liabilities parked in PHPL (Power Holding Private Limited) stand at Rs800 billion, a senior official at Power Division told The News.

‘This shows that the sitting government has piled up Rs800 billion in the circular debt which belies the claims of the government of scaling down the monthly inflow in the circular debt from Rs38 billion to Rs12 billion and will be reduced to zero by December 2020.’

During the ongoing talks with the government, hesaid, IMF mission is said to have also expressed its sheer dismay over the massive increase stock of circular debt.’ When the PTI government took the charge, the official said, the circular debt stood at Rs1.1 trillion after the completion of the caretaker regime. However, it was just less than Rs1 trillion when the PML-N government completed its tenure with Shahid Khaqan Abbasi as prime minister. According to the data available with The News the circular debt has precisely increased to Rs1.89 trillion by December 2019.

According to NEPRA officials, this incumbent government has already increased the tariff by 12.5 to 30 percent in power tariff by passing all inefficiencies, capacity charges, and Net Hydel Profit. Right now in the tariff the huge amount of Rs650 billion is already included in the head of capacity payment charges of powerhouses. The total capacity charges stand at Rs850 billion but out of it, Rs650 billion alone is part of the tariff. This means that full payment in the tariff is not included causing soaring circular debt. The required tariff rationalization is also not done as in the last quarterly tariff adjustment there was a gap of Rs72 billion which is not recovered yet. And more importantly, the Dollar-Rupee parity has also hit the power sector the most, as the tariff is determined in cents and the indexation of capacity payments is also in dollars.

The government has increased the power tariff by 12.5 percent for the consumers having no ToU meters (Time of Use) and 30 percent for the consumers having ToU meters. The government has already passed a huge amount of Rs226 billion to the end consumers which the PML-N government had not passed. This improved the cash flow situation in the power sector but from January 2020 onwards, this government does not seem to maintain the cash flow situation as the process of passing the past liabilities of Rs226 on to the end consumers was completed in January 2020.

Apart from it, the official said, in the past during PML-N government, NEPRA increased the permissible losses of tariff from 13.5 percent to 16.5 percent and the sitting government is stilling glued to that decision taken primarily because of the worsening law and order situation in many pockets of the country owing to which recovery of electricity bills was not possible. Now while the situation has normalised and there is no law and order situation across the country, but the increase in permissible losses by 3 percent in the tariff continues to exist and the government continues to fleece almost Rs148 billion per year from the compliant consumers. He said the revenue-based load shedding by the government of 3000- 5000MW at different times of the year continued which resulted in a great reduction in demand and owing to the reduced demand, the powerhouses remain idle which is why the payments of capacity payment have swelled manifold which is paid by the end consumers.

He said only rudimentary efforts were being made to increase electricity sales in Balochistan, KP and Sindh where huge swaths of areas are without regular power. This has led to an increase in discontent among the public because of which the federation is under pressure. The “CPEC power projects have also been allowed 80% mandatory off-take even when these do not come within the ambit of the Economic Dispatch Order. As these are highly over-invoiced, their tariffs are high and their huge impact is also reflected in the power tariff.

He added that the Qatar LNG used in power plants is overpriced and also on the take and pay contract saying it is again leading to an increase in tariff. The industrial experts are of the view that Nepra does not have the required necessary audit qualifications which is why the DISCOs are able to get their inflated claims accepted which is also causing a rise in the tariff. The same is true for the Monthly Fuel Price Adjustments. The CPPA(G) as the clearing house has become a tool for the Power Division and forces Nepra to accept all claims without proper audits.

The Power Division secretary, when contacted, said that the official, who deals with the circular debt, was in a meeting with the visiting IMF delegation. However, he added that the monthly inflows in circular debt had been decreased from Rs38 to Rs12-23 billion and the amount will come to zero by December end this year.