Circular debt

The government appears to be helpless in controlling the circular debt that has now swelled by Rs260 billion in the first ten months of the current fiscal. Though the government is claiming that it has controlled the buildup, the broader picture is not very convincing. According to the power division report for April 2021 that it submitted to the cabinet committee on energy, the buildup of circular debt from July 2020 to April 2021 was Rs260 billion. It is lower than the Rs449 billion buildup in the corresponding period of the last fiscal year, but this has happened mainly because of the power tariff increases meted out to consumers. Needless to say, transferring the burden of the debt on consumers of power is not a sound strategy to tackle this issue.

There are a couple of points that need the attention of the power managers of the country. First, the government must plan to make the power sector viable in the long run rather than employing ad-hoc measures such as increasing tariffs. Second, there has to be some detailed strategy to prevent the accumulation of arrears that mainly benefit businesses and industries more than the domestic consumer in Pakistan. The increase in power tariffs in the beginning of the 2020 fiscal year ultimately compounded the financial woes of people when the Covid-19 pandemic arrived in the country. With depleting jobs and declining resources, consumers had to face a double whammy of the pandemic and increased power bills. The government did this under the pretext of rising capacity charges and fuel price adjustments. Though it did help the government in its attempts to improve gross revenues in this sector, it heralded a hard scenario for the consumers.

The growth in intermediate consumption has also progressed modestly and more needs to be done in this regard. A shift to cheaper sources of power needs to be explored in earnest. More than pricing it seems to be a governance issue as transmission losses still pose a major hurdle in the way to financial stability in this sector. More infrastructure investment is needed to control these technical losses. The risks posed by an imbalance of expenses and revenues is a perpetual problem which dents the overall health of the power sector. The competitiveness of various power sources needs ample analysis and proper implementation of altered mechanisms to eliminate – or at least reduce – circular debt. Automatic tariff notifications and revisions also need to be streamlined, keeping in mind their merits and demerits to consumers. Though the government is prompt in its collection of bills from common consumers, we do not see the same alacrity when it comes to big defaulters who have been enjoying subsidies for long.