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Circular debt continues to rise

Published Mar 21, 2016 06:13am


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ISLAMABAD: The circular debt of the power sector is continuing to rise despite a series of surcharges imposed on consumers and other measures taken to contain it under a three-year plan.

An official of the water and power ministry told Dawn that “under-budgeting of power sector subsidy by the finance ministry is emerging as a major stumbling block along with other structural rigidities in the system in controlling the circular debt”.

He said the government had allocated a subsidy of Rs98 billion in the 2015-16 budget compared to Rs221bn in 2014-15 “to artificially lower budget deficit at the cost of power sector’s financial stability”. This has been brought to the notice of the prime minister and the finance minister, he added.

The official said that subsidy actually being passed on by distribution companies (ex-Wapda Discos) to residential, agricultural, AJK and Fata consumers was more than Rs200 billion. “How can this be covered with a Rs98bn budget?” Because of this reason, the circular debt increased although it had been successfully capped in the first year (2015) due to “historical reduction of 5.8 per cent in aggregate technical and commercial (ATC) losses”.

A finance ministry spokesman did not agree. In a written reply, he said the government had carefully budgeted Rs118bn tariff differential subsidy (TDS) for the current year and referred to another Rs20bn subsidy earmarked for K-Electric and Rs98bn for Discos. He said the TDS for Discos had been worked out by calculating the difference between Nepra-deter­mined tariff and effective consumer tariff and the number of units estimated to be sold during the year.

Similarly, the KE subsidy has been estimated after notifications by the government for the fiscal year and adjusting the consumer tariff in line with the power ministry’s notifications. “Once the quarterly notifications are applied, the subsidy is estimated to largely fall in line with the budget estimates,” he added.

Another official said that the circular debt capping plan was based on a number of assumptions and actions planned to be taken by various ministries, but fell as the low oil price bonanza set in. The government started keeping major part of the monthly fuel price adjustment against domestic consumers below 300 units per month as a windfall and did not focus on structural issues — low recoveries and high losses.

The major reduction of about 3pc in ATC losses was achieved because of relaxation by the power regulator to allow about 15pc losses in tariff against its previous benchmark of about 12pc, he said, adding that less than 1pc loss reduction was achieved by distribution companies through various measures.

Moreover, the federal government was expected to renegotiate an applicable tariff with Azad Kashmir and make some payments on behalf of the AJK government, besides facilitating recovery of electricity arrears from provincial governments.

This was also confirmed by the finance ministry spokesman. He said the “amount of circular debt build-up is related to a number of policy decisions to be implemented by the Ministry of Water and Power”. The subsidy of AJK, Fata and the amount based on the understanding that timely policy actions in all these areas will ensure that the budgeted amount is sufficient and does not result in the increase of the circular debt, he said.

At the same time, the performance of Discos has to be such that they adhere to the targets of T&D losses as set by the regulator, which is 15.3pc and recoveries are kept close to 100pc, he added. The finance ministry said the subsidy amount was the obligation of the government based on the differential tariff set as a policy and paid monthly as per claims received and “utmost effort is made to ensure that current year claims are met timely”. Nevertheless, “the government stands committed to meet the claims under this head, as it has done without fail and on time since it assumed office in June 2013”, it added.

Published in Dawn, March 21st, 2016

Comments (14) Closed

Speak out Mar 21, 2016 06:52am

There is no shortage of PhD s in economics,CAs,in our country,if Dar in unable to tackle this circular debt problem,call a seminar,or conference of economists,listen to them ,and act accordingly.The Ministry of Finance should wash it's brain,and consider people of Pakistan as stake holders not the power producing Cos,take bold step,and take stringent regulatory actions if needed. Once serious effort is indulged this debt issue will be solved.

Malik Mar 21, 2016 08:03am

Why FATA is using free electricity?. One whole region where there are virtually no electric meters. This is a joke or what?. AJK , Agri and FATA alone costs us more than 200 billion rupees. Where in the agreement it was written that people of FATA will house all the terrorists and will consume the free amenities like that?. Also AJK is already getting the royalty, then what is the reason for subsidy for this independent zone?.

M. Ahmed Mar 21, 2016 09:05am

Corruption continues, business as usual

brar Mar 21, 2016 09:52am

This is pea nuts compared to the power subsidy being granted by the East Panjab Govt which is IRS 550 billion. Power for agriculture totally free and scheduled caste consumers allowed 200 units free per month for domestic consumptions, the politicians are concerned with votes only because no farmer asks for free electricity but they ask for fair price for their produce.

Truth Mar 21, 2016 10:43am

Artificially it is made out to be "business as usual".

S Malik Mar 21, 2016 10:51am

@brar Sir, India's GDP is more than 8 times when compared to Pakistan's and much better systems. I do not understand why you are making this comparison. And it is peanuts*.

Saad Qureshi Mar 21, 2016 10:56am

The govt is doing the best it can. Nobody can script a turnaround in a couple of years. GDP has to rise and investment has to start creating jobs. CPEC is the only hope left.

Sab Se Pehle Pakistan Mar 21, 2016 01:04pm

Circular debt continues to rise while institutions with power are busy setting personal scores against one particular nominated political party of Urban Sindh. Name one person from Panjab who has been caught for financial corruption and crimes? So much for the so called across the board operation.

naji Mar 21, 2016 01:13pm

No surprise, Pakistan's economy is dependent on IMF loan, we are not exporting anything new, old export/business is on decline, economy based on printing new notes, no basic economic policy formulated, economy based on random decisions. What we can expect, rising circular debt or lowering debt? In Pakistan dozens of highly qualified, experienced and honest economist are available.

Ahmer Mar 21, 2016 01:45pm

Why Govt has failed to conduct capacity audit of IPP's? Who is so powerful? Govt or IPP's?

Imran ali Mar 21, 2016 02:25pm

I cannot understand why circular dept increasing when fuel price decreased many fold and people getting inflated bill,where the money going..

iffi Mar 21, 2016 02:31pm

The Experienced team has miserably failed on all fronts ...... but they are very successful in loot & plunder of this poor nation ... what a shame ..,..

Karachitee Mar 21, 2016 02:44pm

@Malik So let us built orange train in FATA area first, provide water and sewage facility there as well. Then ask them not to use free electricity. Hypocrisy is at its peak.

Malik Mar 22, 2016 03:54am

@Karachitee So you are advocating the use of free electricity by FATA with the rationale of orange train in Lahore. RIP logic.