Circular debt challenge

Published November 1, 2021

WISHES, unfortunately, are not horses, as the public knows. Hence there is scepticism around the official strategy to curtail the power sector’s circular debt or arrears that it cannot pay to power supply companies. The Power Division has set itself the tall target of curtailing the debt by about Rs425bn during the ongoing fiscal in spite of an increase of nearly Rs100bn in its stock during the first quarter of the year. How exactly are they going to pull it off? According to the proposed plan, the power sector authorities hope to achieve their targeted reduction in the circular debt primarily through an increase in the base electricity tariff for recovering Rs230bn from consumers in addition to taking other measures such as the settlement of outstanding arrears of private power producers. The strategy may help a bit in reducing the pace of debt accumulation in the coming months, but it remains unclear how these steps will slash a significant part of the government’s massive off-the-budget liability as is being claimed.

Pakistan’s power sector is in a serious crisis as signified by the circular debt. No matter what the government does the hole will keep getting deeper without serious governance reforms in this sector. Multiple upward adjustments in electricity prices for full recovery of costs over the last several years have only complicated matters; every tariff increase forces consumers to use less electricity as their ability and willingness to pay erodes. Expecting a miracle in the absence of adequate investment in the power distribution network of publicly owned distribution companies to cut system losses, effective measures to check electricity theft and complete recovery of bills from all consumers is foolish. What is important for the government is to encourage consumption of surplus generation to make capacity payments to power producers sustainable, and deregulate the domestic electricity market on the lines of international examples. Otherwise, the circular debt will continue to rise, rapidly or at a reduced pace, threatening Pakistan’s financial stability.

Published in Dawn, November 1st, 2021

Opinion

Editorial

Iran’s counterstrike
Updated 15 Apr, 2024

Iran’s counterstrike

Israel, by attacking Iran’s diplomatic facilities and violating Syrian airspace, is largely responsible for this dangerous situation.
Opposition alliance
15 Apr, 2024

Opposition alliance

AFTER the customary Ramazan interlude, political activity has resumed as usual. A ‘grand’ opposition alliance ...
On the margins
15 Apr, 2024

On the margins

IT appears that we are bent upon taking the majoritarian path. Thus, the promise of respect and equality for the...
Noshki killings
Updated 14 Apr, 2024

Noshki killings

It must be asked why Baloch separatists continue to target civilians as well as security men despite large deployment.
Upholding the law
14 Apr, 2024

Upholding the law

THE recent discord in Bahawalnagar offers a chance to reflect on the sanctity of the law and its enforcement across...
Tragic travels
14 Apr, 2024

Tragic travels

FOR those embarking on road and boat journeys, the probability of fatal accidents has seen a steady rise. The recent...