KARACHI: To resolve the circular debt issue, the Employers Federation of Pakistan (EFP) on Thursday suggested the government to commoditise electricity by creating a hedge market.
Sharing proposals budget 2019-20 at a press conference held at the Karachi Press Club, EFP officials said electricity generated in excess can be sold in the form of futures which can be traded by people and the funds could be used to finance investments by the government.
The joint press conference was addressed by EFP president Majyd Aziz, as well as the body’s chairman economic council Ismail Suttar and chairman budget advisory committee Zakaria Usman.
The country is presently generating over 32,000MW, out of which 33 per cent is produced by independent power producers (IPPs), whereas the current distribution capacity can hardly stand for 20,000MW.
The government has to pay the IPPs for the extra electricity even if it is not utilised by end consumers. In this scenario, the cost of increasing the distribution capacity even by 5pc is in billions of dollars, the leaders maintained.
Once the idea of creating wholesale market for electricity and hedge trading materialises, energy futures can be trade on the Pakistan Stock Exchange (PSX).
Under this mechanism the investors will be required to hold these bonds at 10pc markup for at least one year.
The EFU proposal maintains that markup paid on these bonds should be treated as dividend and the income be taxed. The bonds could be pledged with financial institutions.
It was also clarified by these leaders that this proposal will not disturb the current agreement with the power generating companies.
Published in Dawn, April 26th, 2019