In spite of significantly increasing electricity prices, the circular debt has almost doubled within three years to Rs2.28 trillion due to the government’s failure to stem systemic losses, an energy ministry report showed.
The ministry submitted the final circular debt report for fiscal year 2020-21 that ended in June before the Cabinet Committee on Energy (CCoE), which met on Friday.
The report showed that the power sector’s circular debt remained at Rs2.280 trillion, which is slightly less than the earlier provisional estimates of over Rs2.3 trillion.
When the Pakistan Tehreek-e-Insaf (PTI) came to power, the circular debt was Rs1.148 trillion that has doubled within three years.
The ruling PTI had promised to bring the circular debt to zero by December 2020 but the numbers showed that there was an increase in both the flow and stock of the circular debt compared with June 2018.
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The circular debt piles up due to gap between the cost of electricity generation, transmission and distribution and actual money collected on account of bills including increase in tariffs and payment of subsidies.
The government added Rs404 billion to the flow of circular debt in the last fiscal year due to less provision of subsidies against commitments, increased cost of inefficiencies, interest on debt parked in a holding company and less recovery of bills, documents of the energy ministry showed.
However, the government report showed that the net increase in the circular debt was Rs130 billion in fiscal year 2020-21 after adjusting increase in electricity prices and reduction in the stock of the debt.
The government has been making efforts to improve efficiency but the power sector situation remains grim despite putting an additional burden of over Rs150 billion on consumers in the past one year by increasing electricity prices, the summary showed.
In its first year, the PTI added Rs464 billion in the circular debt and in the second year another Rs538 billion were added and now after adjusting subsidies and increase in tariffs the net addition was Rs130 billion in the third year. The Rs130 billion figure was not telling the complete picture.
The government paid Rs90 billion to independent power producers (IPPs) and another Rs77 billion reduction was shown on account of retirement of Power Holding Limited debt.
There was Rs207 billion or 20% increase in the flow of the circular debt, as the payables to the power producers jumped from Rs1.04 trillion to Rs1.3 trillion, according to the report. But the stock has been reduced by 7.6% to Rs930 billion –a reduction of Rs77 billion.
Rs404b debt break-up
In fiscal year 2020-21, the government provided Rs72 billion less in subsidies as against the requirements that then became part of the circular debt, according to the summary. There was an increase of Rs57 billion on account of unpaid subsidies and another Rs15 billion due to unbudgeted subsidies. The government did not pay Rs27 billion AJK subsidies and another Rs6 billion of the K-Electric consumer subsidies despite making commitments.
The government added another Rs75 billion in the circular debt on account of interest payments to the IPPs on delayed payments, which were 36% higher than the preceding year, according to the summary.
Similarly, another amount of Rs30 billion was added on account of interest paid on the Power Holding Limited loans, which were 57% less than the previous year. This is despite the fact the consumers are also paying debt servicing surcharge through their monthly bills.
There was an improvement of 81% under one head – and it is passing on the generation cost to the end consumers. As against the preceding year’s Rs270 billion, in the just ended fiscal year Rs51 billion was added under this head, which suggest significant price increase.
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An amount of Rs82 billion was also added in the circular debt due to non-payment by K-Electric. The power distribution companies’ uncontrolled losses added another Rs67 billion in the circular debt – up by 59% over the preceding year. This shows that the PTI government has failed in bringing improvement in governance of these power distribution companies, nor it could privatised them.
The government showed 157% improvement in recoveries but still added Rs27 billion in the circular debt due to less than targeted recoveries by the power distribution companies. A key reason behind improvement was Rs31 billion recoveries on account of installments of the bills related to Covid-19 period.
The government has recently prepared a plan to reduce the circular debt but the new plan, drawn up in consultation with the International Monetary Fund (IMF), shows that the circular debt reduction will largely hinge up increasing the electricity prices.
There was a reduction of Rs108 billion in the flow of the circular debt by increasing electricity tariffs pertaining to the previous years.
A planning ministry handed stated that CCoE noted that the circular debt build-up had substantially reduced in comparison to the previous year. “The committee appreciated the improvement in the recoveries and directed Power Division to continue with its efforts for reduction of circular debt,” it added.