Reducing circular debt

Updated 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