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June 11, 2021

Power sector’s circular debt reaches 5.2pc of GDP

June 11, 2021

ISLAMABAD: The power sector’s circular debt has reached 5.2 percent of GDP or Rs2.1 trillion till June-end, because of capacity payments on overbuilding of plants, finance minister said on Thursday.

Finance Minister Shaukat Tarin said the power sector has become a black hole. “we have to pay capacity payments which is big challenge to us,” he said while launching Pakistan Economic Survey.

He termed it as a ‘big challenge’ that may take years to resolve it.

Circular debt grew in size over the years, rising from 1.6 percent of GDP (Rs161billion) in 2008, revealed the. Though the survey did not incorporate the addition in debt during first nine months of the current fiscal, however the sources said that it has crossed the Rs2.3 trillion mark.

Tarin said in 2018 the volume of capacity payments to the power generators was Rs450 billion/year which may go up to Rs1.5 trillion by 2023. “We are working on it to resolve this issue. We will make the power distribution companies (DISCOs) efficient through various interventions and then will hand it over to private hands.”

The inefficiencies of the DISCOs have been a major drag on the sector’s financial health, as there are losses and low recoveries.

“We are in negotiation with the International Monetary Fund (IMF),” the minister said. The fund is asking for increasing power tariff, but since it has cascading effects on poor and various sectors of the economy, “so we are not going for that and instead will bring efficiencies to the sector to curtail the debt”.

Transmission and distribution inefficiencies are hampering the sustainable deliveries of energy services, leading to higher energy prices and increased cost of doing business.

According to the economic survey, electricity generation installed capacity has increased by 3.58 percent (1,289MWs) in first ten months of the outgoing fiscal year to 37,261 megawatts (MWs) against 35,972 MWs in same period of last year. Last year, it added 2,520MW capacity.

In terms of energy-mix, Pakistan’s reliance on thermal which includes imported coal, local coal, RLNG and natural gas has been decreasing over last few years. Dependence on natural gas in the overall energy mix is on decline and the reduction of its share in the energy mix is due to declining natural gas reserves and introduction of LNG. The share of renewable energy has steadily increased over the years. The government is also taking measures to increase the shares of hydel and nuclear in energy-mix.

The share of electricity from hydel sources has declined in FY2021 as compared to its share in FY2020. Currently, thermal has the largest share in electricity generation. Moreover, its percentage share in FY2021 has increased as compared to FY2020. Significant growth of RLNG usage in energy mix has helped for improved supply to various power plants. RLNG is also supplied to fertilizer plants, industrial and transport sectors.

The share of electricity from hydel sources has declined from earlier 30.9 percent to 30.5 percent at present in country’s energy mix. Thermal-based electricity share has increased from 58.43 percent to 59.4 percent. Share of nuclear energy down to 7.82 percent from earlier 8.24 percent, share of renewables also dropped from 2.4 to 2.23 per cent.

There is no considerable change in the consumption pattern of electricity. During July-April FY2021, the share of agriculture in electricity consumption is constant. However, the share of Industry in electricity consumption has increased which shows revival of economic activities.

Crude oil’s local extraction and imports reached to 68.9 million barrels in Jul-Mar 2021 from 58.6 million barrel in corresponding period last year, while share of import in July-March 2021 remained 48.2 million barrels as compared to 38.8 million barrels same period last year.

Similarly, in Jul-Mar 2021, consumption of petroleum products increased to 14.7 million ton from 12.5 million ton in period under discussion. Oil storage of 38,579 metric tons added in the country’s logistics during the period of Jul-Mar, 2021 at the cost of Rs.5,786.8 million. Four licenses for construction and one licence for operation of lube oil blending, reclamation and grease plants were issued. five licenses for setting up lubricant marketing company (LMCs) and three operational licenses for LMCs were also issued. these provisions of licenses will enhance the domestic supply of crude oil and will decrease import bill.