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Circular debt re-emerges despite Rs260bn payment

July 13, 2013
- File Photo
- File Photo

LAHORE: The unpaid bills of private power companies — commonly known as circular debt — have again started to pile up in spite of the payment by the government of Rs260 billion to clear their outstanding bills up to end March this year.

Although the exact size of the unpaid bills of private power producers — usually referred to as IPPs (independent power producers) — for the post-March period is not yet compiled, the sources in the power companies told Dawn on Friday that the amount could already have touched the Rs40-45bn-mark. This is despite that the government is making partial payments to the companies.

“My company is producing electricity seven days a week. But we are being paid for only four days of production,” said a senior executive of an IPP on the condition of anonymity.

He said the “issue was complex and the one-time payment of the previous bills was not sufficient to keep the so-called power sector circular debt from rising in future. The government needs to take tough decisions without wasting more time.”

He listed the government’s failure to increase electricity prices to bridge the gap between the cost of generation and sale, prevent power theft and transmission and distribution losses as major factors for the “re-emergence of the power sector debt”.

“The government must follow up on its earlier announcements of reforming the power sector if it does not want the debt to pile up to its previous level.”

The Nawaz Sharif government had pushed fiscal deficit for the last financial year from 7.5pc to 8.8pc of the size of the economy in order to create space of Rs322bn for the payment of the unpaid bills of both state-owned and private power companies and the Pakistan State Oil.

Besides paying the private power producers, the government had also partially cleared the bills of public sector companies and PSO to the tune of Rs62bn.

In order to make the payments before the close of the last financial year on June 30, the government had ordered banks to keep their branches open on the last Saturday of the month despite weekly holiday.

The payments to the private producers were made after they signed a memorandum of understanding with the government. Among other conditions agreed to by the IPPs in the MoU, they had also promised to add 1,700-1,800 megawatts (MW) of electricity to the national grid before the start of Ramazan.

However, all the IPPs have so far added just 194 MW to the system. The total electricity produced by the IPPs stood at 6,117 MW on Friday morning against 5,923 MW they supplied on June 28 when the payments were made to them. This is despite the fact that one producer, Liberty, which was closed on the day payments were disbursed, is now producing 196 MW.

“It means the production of remaining IPPs has declined by two megawatts instead of rising,” a Pepco official said requesting anonymity.

The Pepco official said the decision to pay the unpaid bills of IPPs was taken by the government to please its “unofficial advisers” on energy.

“These advisers themselves own power companies and are mostly interested in the recovery of their own bills rather than in solving the problem,” he alleged.

IPP officials say while some plants like Kapco were not utilising their optimal capacity because of shortage of fuel — gas and oil, the others were operating below their capacity owing to their maintenance schedules or their equipment was damaged. Yet, he said, the maintenance and repairs were being carried out on fast-track to give maximum production.

Total generation has so far increased only by 576 MW from 12,576 MW to 13,152 MW since June 28. The increasing supply gap has forced the Pepco to increase power blackouts for the industry to 10 hours a day from just four hours during July last year, forcing production and job cuts.

As the supply gap is increasing, Pepco is also finding it hard to provide uninterrupted supply of electricity to domestic consumers during sehar and iftar as promised by the government before the start of Ramazan.