Reducing circular debt

Editorial Published May 27, 2019

THE recent claims made by the energy minister, Omar Ayub, regarding the reductions made in the circular debt, need to be examined more closely before they can be taken seriously.

The data he shared with reporters follows earlier claims made in March, in which similar reductions in the debt, and improvements in recoveries, were touted.

His claim that the government would bring the circular debt down to zero by December 2020 is laudable on the surface, but a lot depends on how this will be done, if at all.

At the moment, all we have to go by are the claims made by the minister, with no independent corroboration.

Mr Ayub claimed that the fresh accumulation of the circular debt would be brought down from Rs38bn per month to Rs26bn by June of 2019.

He says this has been achieved on the back of a strong enforcement effort against power thieves as well as their collaborators within the power companies, and they see enough potential in this drive to bring the rate of accumulation down to zero by next year.

Something similar had happened back in 2014 when the rate of accumulation of the circular debt was brought down to zero through ramped-up enforcement and tighter supervision of billing and recoveries.

Alas, that moment did not last long since it was dependent on a few individuals in the power bureaucracy who were taking strong ownership of the effort.

The accumulation started again once those individuals were transferred out. One lesson from that exercise was that without deeper reforms in power-sector governance, lasting improvements in billing and recoveries would remain elusive.

The intention of the government to break the large power distribution companies into smaller ones, starting with the four big ones in KP and Balochistan provinces, and Multan and Lahore, may help lift efficiency.

But the real need of the hour is pricing reform where market forces need to be allowed to play a larger role in power pricing.

This is essential for getting renewable energy off the ground, especially through rooftop solar generation. Perhaps the minister can work on a larger plan on how the power sector should be reorganised for this purpose too.

Mr Ayub’s claims are a reminder of the urgent need for greater transparency in power-sector governance.

Financial and operational data is kept hidden from the public and released at a time, and in a form, that serves the interests of those in power.

Unlike other areas of the economy, such as trade or fiscal operations, the power sector is under no obligation whatsoever to release any data as per a set cycle.

Changing this should be the cornerstone of any reform effort. With regular data releases, the successes and failures of any minister will be self-evident.

Published in Dawn, May 27th, 2019

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May 27, 2019 08:03am

Not only power sector, there is a need for public availability of data in all areas.In fact the impact of various drives, initiatives, corrections should be visible when trending of data is viewed. Further, totally agree that system overhaul is required for sustainable results - results that last even if faces driving those results change. Let's see what kind of measures are taken to ensure a better managed power sector. Crackdown on corrupt elements within the organizations is a must, as no one is ever able to conduct thefts without an insider assistance.

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Ali

May 27, 2019 08:36am

Informative article. Thank you

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brr

May 27, 2019 09:05am

why is bill collection all such a big problem. why should service not be cut off for non payment of bills?

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Sameer

May 27, 2019 09:17am

CAD decreased by heavily taxing imports, luxury items were discouraged which was good omen. However circular debt is a wholely different monster needing to be tamed. Doing so on deadlines is impressive talk but highly plausible as well.

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Ibrahim

May 27, 2019 09:18am

Do the government's claims of bringing circular debt down to zero seem plausible? .. The answer to that is way way over my head.

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Waqas

May 27, 2019 10:18am

Good job PTI. They will fix Pakistan just wait and see. Haters can keep spreading false rumors but reality is Pakistan is getting better every day.

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Fuzail Z. Ahmad

May 27, 2019 10:35am

The Circular Debt accumulation, if the current practices continue, could go down to zero only if the electricity tariff is raised significantly, under the assumption that consumption would not be deterred by the high prices. Pakistan's power consumption has a very high peaks in June/July and deep troughs in the winter months. Also, there is a very high peak in the evening (6pm to 10pm) and a deep trough in the late night and also in day time. If only the peak shaving is achieved with tariff based, Demand Side Management (DSM), the circular debt will become manageable. In plain English, the winter tariff needs to be brought down (and make the gas expensive) and also the daily peak tariffs should be further raised.

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Pro Democracy

May 27, 2019 10:45am

Minister was just misleading public when he is not sharing any data as evidence against his claims. Typical PTI style just talk...

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Vikas

May 27, 2019 11:17am

The only way it’s plausible is that PMIK give the nation a brand new latest “game changer” after the last one “soon to be” found oil and gas flopped. CPEC is also almost dead or a very long term game. So a new game changer whether gold or copper or a car that runs on water would have to be floated quickly to raise the hopes of people and all Pakistanis pray that the “game changer “ clicks and works.

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I am Ali

May 27, 2019 11:29am

we know power theft is a key problem and, therefore, should be dealt with strict supervision and implementation of the laws. In my opinion, a campaign should also be started for awareness of Public about theft and how it effect their rights. Govt will not be able to overcome this menace until and unless the sense of responsibility come in the public.

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Tariq Abbasi

May 27, 2019 11:39am

Good analysis. Suggestions on data release must be implemented by the ministry as a policy. However, can't we get the data information under the right to information act?

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Nothing but truth

May 27, 2019 01:16pm

There is nothing an honest and determined government can't achieve.

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Abbas shah

May 27, 2019 01:40pm

Can’t expect much from used up lottas from Mush,PPP&PlmN &Technocrats .

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Sufyan Ahmed

May 27, 2019 01:58pm

It is of core need to decrease circular debts to zero of power sector by applying essential measures as strict actions against power thieves and their collaborators within the sector rather than tightening of billings but recoveries along with reconstruction of infrastructure to avoid the loss of power. It would also be necessary to generate power through modern ways, like renewable resources especially solar & wind to less the burden on imports to sustain the economy of the state. Transparency can be launched by putting the financial & operational data online as a check and balance measure for the administrative authorities by itself to avoid the personal interests of the power mongers.....

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Mehboob Ali Lalani

May 27, 2019 02:08pm

Circular debt can be minimized by catching power thieves, improving transmission lines, reducing transmission losses and enforce strict financial discipline. If there is will, there is way. Nothing is achieved without hard work and sincerety of purpose.

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Parvez

May 27, 2019 03:24pm

A good start to bring down this debt is for the government to first pay their debt from their allocated budget.....and if the provincial governments raise objections 95 % should be recovered before funds are distributed by the center to them.

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Amjad Durrani Engineer USA

May 27, 2019 05:50pm

The approach of attaining a 300 Bns / year reduction in circular debt through plugging in power theft alone, is definitely a half cooked up plan. Presently, despite adding almost 11,000 Gigawatts to electricity generating capacity between 2008 to 2018, the country’s 66 KV lines, 220 KV distribution lines & 500 KV grid stations, remain in dilapidated condition & causes 32.7% lines losses against standard of 11.3%. The power theft caused due by famous “Kundi system” defectives metering and under billing through connivance between industrial user & meter reader, power theft remains to be 11.5%. The combined impact in financial term is 500 Bns yearly. In view of the above, the past govts. found an easy escape to the issue, to recover as much as possible by over billing the domestic consumers or subsidizing the losses. Since subsidiaries of 700 Bns will be gone as a result of IMF loan agreement, the govt. needs to cutdown huge line losses to bring down circular debt, as soon as possible.

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Bhaijan

May 27, 2019 07:04pm

Let’s appreciate Omar Ayub resolve.

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MEmad

May 27, 2019 07:11pm

Even before they have done anything you write an editorial shedding doubts on their capabilities. How about giving them a year for a change. Shall we ?

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Right

May 28, 2019 12:36am

Its an informative editorial. The power sector needs administrative reforms and investment in its distribution system for disconnectivity for theft and non recovery remotely with every transformer measuring usage. Similarly going after the companies which are provided less electricity from grid but high loss is a failed policy. LESCO is provided the highest amount of electricity from grid and its loss is 14% like it is provided 3000 MW from which 420 MW is being lost which is roughly equal to electricity provided to QESCO. So we need to plug this huge loss in so called efficient companies to bring down the losses in power sector. Electricity theft is easy to control in big cities compared to rural areas.

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May 28, 2019 07:20am

@Amjad Durrani Engineer USA, Well, as you rightly mentioned, a multi-pronged approach is needed to carry out the plan of zero circular debt. Further, alternative sources of power generation should ease up the consumption burden on the current system, however, recovery will still be the biggest factor coz no matter how much we produce, how efficiently we distribute if we miss out the payment on all the production and efficiency, we would still be back to square one. The key is to have a strong automated system of making recoveries, starting from least human intervention in billing, more automation, transparency and least power to humans who participate in connivance activities Transparency to facilitate trust building.A general consumer should be able to actually trust the system based on billing data and actual consumption made during any period. and IT CAN BE DONE! We just need the will and apply the right kind of tools n inshaAllah we will make it.

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