Circular debt and inefficiency

According to assessments, circular debt in the power sector will almost double by 2025, causing a further economic disaster. The debt which currently stands at Rs2,219 billion is expected to increase to Rs4000 billion in the next 25 years. This will also mean an increase in the power tariff, a fact that is already deterring multinationals from investing in Pakistan. There have been comparisons to countries in the same region including Vietnam, Sri Lanka, Bangladesh, India and Malaysia where prices of power are considerably lower than in Pakistan. A key reason for this is mismanagement. The inefficiency in the running of DISCOs in the country is believed by experts to have been the main factor in the inability to properly manage the power sector. A report, prepared by Engro Corporation, which is titled 'Fixing Pakistan’s Power Sector' paints a picture which is hardly positive and not at all reassuring. It notes that prices for residential consumers are 25 percent higher than the domestic tariff for consumers in seven other countries in the region. The industrial tariff is 26 percent higher than the same countries.

The DISCOs which are most inefficiently run have been identified as PESCO, QESCO, SESCO and HESCO. It is believed that the inefficiency in these DISCOs adds immensely to the circular debt and that by 2025 this amount will stand at Rs1.5 trillion. This is obviously an immense amount with huge amounts of forex also being lost because of the failure to manage the power sector. The IPPs set up in the past 20 years have added to the debt cycle. While DISCOs have been asked to improve their performance, there is lack of clarity on how they can achieve this until management and the entire setup of the power sector is improved.

It seems obvious that the problem needs to be examined very carefully and a proper plan put in place. Without good management and decision-making, we will literally be pouring money down the drain while struggling to cope with the damage the failures in the power sector inflict on our economy. These failures of course also hit the common man very hard. People have no choice but to pay utilities, whether they are domestic consumers or small traders. At the present time, we do not see any serious attempt to correct the faults in the power sector. Instead more and more is added to bills as subsidies are removed and harsher terms put in place. This is a matter the government needs to take up with some urgency if it is to encourage overseas investment in the country and also enable local business to run efficiently and effectively without putting a large percentage of profits into paying ever-growing power bills.