KEEPING the lights on in Pakistan is proving much too expensive. Electricity has become unaffordable for a vast majority of households, with power producers and their fuel suppliers having their liquidity stuck somewhere in a deep hole, and the government accumulating a fiscally unsustainable mountain of debt that it doesn’t know how to get rid of. The continued inability — or avoidance — of successive governments to effectively handle circular debt, or the cash shortfall across the power sector supply chain, means that the arrears it cannot pay to the power supply chain have now spiked to Rs2.44tr from Rs2.25tr at the end of September last year. At least a third of this amount is contributed by interest costs and late payment charges on the actual unpaid bills of the power producers and fuel suppliers. This is in spite of several plans and strategies that the authorities developed over the last few years to stop the increase in debt stock and liquidate existing arrears. Last year, for example, the PTI government had formulated a strategy to pay a part of this debt through payouts it expected to receive from state-owned, listed energy companies. The surge in the outstanding debt stock means that the government is again planning to charge an additional Rs43.34bn from power consumers at the rate of Rs2.18 per unit in the three-month period from January to March under a quarterly tariff adjustment mechanism as agreed on with the IMF. How this is going to rid us of the circular debt is anybody’s guess, considering our past experience.
The mounting circular debt means Pakistan’s power sector is in a serious crisis, and no matter which government is at the helm, the problem will worsen. Multiple upward adjustments in electricity prices (like the one proposed for the next quarter) over the last several years have only complicated matters, and proved a disincentive for distribution companies to reduce their system losses, which are increasing on the back of poor infrastructure, theft and non-recoveries from private and government consumers. Almost half the circular debt build-up is said to have been caused by these distribution losses over and above Nepra’s allowed limit, and the failure to recover bills. Expecting a miracle without cutting these losses would be foolish. But circular debt is as much a political challenge as it is a management problem. No governance reforms can succeed unless the ruling circles are prepared to pay the attached political costs.
Published in Dawn, November 18th, 2022