Structural, regulatory flaws cause surge in circular debt

ISLAMABAD: Structural and regulatory flaws contribute 63 percent share in circular debt of power sector every year which has now reached Rs2.219 trillion, whereas inefficiencies at the operational level contribute 37 percent share, a senior official of Energy Ministry told The News.

Circular debt in June 2018 stood at Rs1.135 trillion and increased to Rs2.219 trillion in June 2019-20 showing over 100 percent increase. Explaining the reason for a surge in the circular debt every year, the official said there were structural flaws in tariff and the time lag in notification of monthly fuel adjustment, quarterly fuel adjustment and annual tariff was causing increase in circular debt.

He said prior to freezing the tariff in case from November 2019, there was a time lag of two months in monthly fuel adjustment, 6 month in quarterly tariff and one year time lag was in annual tariff and still the situation has worsened to this effect.

He said that the government did not pass on to the end consumers due surge in tariff of Rs255 billion under quarterly adjustment mechanism due for the second and third quarters in 2019-20.

More importantly, under the monthly fuel adjustment mechanism, the increase in tariff amounting to Rs42 billion has not been passed on to the consumers. The official said the government should ensure the actual subsidy in the budget, but the practice of unbudgeted subsidy continues unabated and an amount of Rs95 billion has not been released to the power sector in this head and because of this very issue, the circular debt in 2019-20 increased manifold.

The story of reasons for circular debt does not end here as the debt servicing of Power Holding Private Limited amounting to Rs 72 billion has also not yet passed on to consumers, so the amount of Rs72 billion appeared in the circular debt during the last financial year of 2019-20.

The top official also pinpointed that for the relief provided to end consumers because of the adverse impact of COVID-19 on the economy, the electricity bills of Rs 50 billion had been staggered and the said amount had not yet recovered and in the wake of this every issue, circular debt had also worsened.

And because of inefficiencies of DISCOs in coping with Transmission and Distribution losses and non-recovery of electricity bills have contributed about Rs195 billion in the circular debt.