Monster of circular debt

Published December 1, 2021

NOW that the staff-level agreement has been finalised between Islamabad and the IMF to restart the suspended $6bn funding, the government appears to be looking at different options to reduce the increasing debt stock in the energy sector as agreed with the international lenders.

One such scheme, as outlined by adviser on finance Shaukat Tarin in recent weeks, wants the energy heavyweights listed on the PSX, in which the government has major stakes, to start announcing dividends for their shareholders.

The payout the government expects to receive from these companies as a shareholder would automatically get adjusted against the debts it owes to them but that it cannot pay off because of the cash crunch. By Mr Tarin’s own estimation, the plan will help reduce the existing stock of circular debt by Rs300bn-Rs400bn.

Prima facie, the proposed plan looks doable and must supplement the efforts to curtail the stock of the power sector debt. The debt has already spiked to nearly Rs2.5tr and could jeopardise the power sector’s viability and threaten Pakistan’s energy security. But this is not the first scheme proposed for overcoming the menace of the fast-growing circular debt. We have seen many proposals in the past to liquidate the debt. But none has worked so far, at least not in the way they were intended to.

Will the authorities pull it off this time? It’s hard to say at this moment with details still being worked out by the relevant ministries. In its announcement of the staff-level agreement with Islamabad, the IMF appreciated measures such as the adoption of the amended Nepra Act, notification of pending quarterly power tariff adjustments and the revision of power purchase agreements with the IPPs.

Most of these steps have only added to the burden on hapless power consumers rather than resolving the circular debt situation. The crisis facing the energy sector cannot be tackled sustainably without taming the many elephants in the room: massive distribution losses, widespread power theft and huge unrecovered bills from all consumers.

Published in Dawn, December 1st, 2021

Opinion

Editorial

Last call
Updated 15 Nov, 2024

Last call

PTI should hardly be turning its "final" protest into a "do or die" occasion.
Mini budget talk
15 Nov, 2024

Mini budget talk

NO matter how much Pakistan’s finance managers try to downplay the prospect of a ‘mini budget’ to pull off a...
Diabetes challenge
15 Nov, 2024

Diabetes challenge

AMONGST the many public health challenges confronting Pakistan, diabetes arguably does not get the attention it...
China security ties
Updated 14 Nov, 2024

China security ties

If China's security concerns aren't addressed satisfactorily, it may affect bilateral ties. CT cooperation should be pursued instead of having foreign forces here.
Steep price
14 Nov, 2024

Steep price

THE Hindu Kush-Himalayan region is in big trouble. A new study unveiled at the ongoing COP29 reveals that if high...
A high-cost plan
14 Nov, 2024

A high-cost plan

THE government has approved an expensive plan for FBR in the hope of tackling its deep-seated inefficiencies. The...