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March 8, 2020

Power emergency

Opinion

March 8, 2020

Circular debt is the biggest of all bombs and, therefore, the biggest of our challenges. To be certain, the very foundation of an economy is the energy sector. Our energy sector is going from bad to worse – and from worse to cursed. During the PPP regime, circular debt moved from Rs228 billion to Rs500 billion. The PML-N took it from Rs500 billion to Rs1,100 billion. And the PTI, from Rs1,100 billion to Rs1,900 billion. Imagine: Rs1,900 billion is the equivalent of $12.5 billion or over 200 percent of what the IMF has promised us over a 39-month period.

It is quite visible now that the Power Division is out in the wilderness – and has little or no idea as to what is going on. For the record, only a few weeks ago, the Power Division had declared victory over circular debt claiming that it was increasing by Rs10 billion a month (we have agreed with the IMF that the growth in circular debt will be brought down to zero by year-end).

Lo and behold, the National Electric Power Regulatory Authority (Nepra), with the World Bank present, has now disclosed that circular debt is actually increasing by a whopping Rs41 billion a month. During the time of the PPP and the PML-N, circular debt grew at Rs4.5 billion a month and Rs10 billion a month, respectively (one of the reason of lower debt growth back then was lower installed capacity).

Two things are absolutely clear. One, no government in the past has been able to control the growth in circular debt. Two, the current rate of growth in circular debt is unprecedented – and potentially disastrous. Circular debt is five things: massive conflict of interest, expensive electricity from IPPs, major recovery losses, technical line-losses and theft.

What we need is a five-pronged strategy. What we have is an absolute status quo. For the record, no government over the past 12 years – the PPP, the PML-N or the PTI – has been able to undertake any meaningful reform in any of the five contributors of the Rs1,900 billion circular debt.

Lo and behold, we only talk about one circular debt. There are three other circular debts: wheat, gas and LNG. The circular debt in wheat is under the government’s ‘commodity operations’ and amounts to Rs800 billion (or so). The circular debts in the gas and the LNG sectors are Rs200 billion and Rs94 billion, respectively. That’s a whopping Rs2,994 billion worth of circular debts.

The PM has promised the textile sector electricity at 7.5 cents a unit. The Power Division claims the cost of service to be 14.5 cents a unit. That is a Rs50 billion promise. The Ministry of Finance claims the treasury is empty. What next? Promises or Japanese plum trees!

“It’s the economy, stupid (a phrase coined by James Carville, Bill Clinton’s election campaign strategist).” And there’s no economy in the absence of energy security. Red alert: Our energy security is under threat because the circular debt is the biggest of bombs waiting to explode.

The writer is a columnist based in Islamabad.

Email: [email protected] Twitter: @saleemfarrukh