IN November last year, Adviser to the Prime Minister on Finance and Revenue Hafeez Shaikh claimed that the circular debt would be eliminated by the end of 2020. His colleague Special Assistant Nadeem Babar has also made similar predictions on multiple occasions. Mr Babar asserts that the government has arrested the pace of monthly increase in the circular debt, bringing it down to around Rs10bn-12bn from nearly Rs38bn during the last years of the PML-N government.

Unfortunately, there is plenty of evidence to contradict such assertions. A Senate panel was informed by power ministry officials the other day that the power sector’s liability had spiked by a hefty Rs538bn or 33.4pc to more than Rs2.1tr during the last financial year. The average monthly build-up of almost Rs45bn in the overall volume of the debt during the last fiscal is way higher than what the government had projected.

The pace of increase has been even faster than what the PTI ‘inherited’. The total debt stock has almost doubled in two years under the PTI. During the Senate hearing, the government team blamed Covid-19 for the shortfall of Rs240bn in the collection of bills and the sharp rise in debt. Even if their explanation is accepted, the pace of accumulation of arrears has still been substantially more rapid than the claims made by the government.

The origins of the circular debt — the amount of cash shortfall within the Central Power Purchasing Agency that the latter is unable to pay to its power suppliers — go far back in time and successive rulers must share the blame for the huge mess in the country’s power sector.

It is a collective failure which is now threatening the nation’s fiscal stability and penalising consumers through far higher electricity tariffs compared to other countries in the region. The sad part is the PTI government’s inability to come up with anything resembling a reform plan to contain the debt during its two years in power.

It has pursued the same old strategy of raising consumer electricity prices and resorting to revenue-based blackouts — just like its predecessors. In June, it moved a bill to secure the power to impose surcharges on consumer electricity tariffs and special wheeling charges on industrial consumers to control the debt build-up. Recently, it has forced several private power producers to accept a reduction in their returns through changes in their agreements with the CPPA-G to slow down the accumulation of arrears.

Few believe such actions will work. Instead, the expert opinion is that such short-term ‘solutions’ have taken the focus away from the real issues plaguing the sector — high distribution losses, widespread electricity theft, massive unrecovered bills, and so on. It is an untenable situation. What is needed urgently is a plan to liquidate existing stocks and a strategy to stop its further accumulation without burdening the consumers.

Published in Dawn, September 5th, 2020