ISLAMABAD: The government has decided to 'clean up' chronic circular debt in the next two months through Rs130 billion borrowing from banks and to enforce separate power tariffs in different regions to stop its re-emergence.

Water and Power Minister Syed Naveed Qamar told on Wednesday that the finance ministry was working on raising Rs130 billion from the banking sector through term finance certificates while about $500 to $1 billion would be raised through the launch of OGDCL's exchangeable bonds to 'clean up' the circular debt from balance sheets of energy companies.

At the same time, he said, the government would have to bridge the gap between the generation cost and sale price so that it did not re-emerge.

The minister said that the government's economic team had taken up the matter of raising funds from banking industry for the power sector with the International Monetary Fund (IMF) during a recent visit to Washington and the Fund had consented to the transaction as a 'one-off measure' because this was going to add to the fiscal deficit.

He said the government was amending the National Electric Power Regulatory Authority (Nepra) Act so that it determined differential tariff for every distribution company and directly notified it without looking towards the federal government.

After implementation of different tariffs for distribution companies, the power sector subsidies would be withdrawn but the government could still provide assistance to loss-making companies if it so desired but profitable companies would not absorb losses of another region.

Currently, Karachi, Hyderabad, Multan, Peshawar and Quetta electricity companies are big loss makers. The KESC and Sindh government together owe more than Rs85 billion to distribution companies.

He said the government would have to rationalise electricity subsidies but that would not mean tariff increase for all companies. For example, there would be no need for tariff increase for Islamabad Electric Supply Company but perhaps 30-35 per cent losses would need to be represented in the tariff of Hyderabad Electric Supply Company.

Mr Qamar said that the power shortfall had come down from an 'abnormal' peak of 7,000MW a few days back to a 'normal' supply-demand gap of about 4000MW.

He said the government had been able to bring to completion about 1400MW of new power projects since January this year which would offset a part of higher demand in peak summers.

These included a 195MW Liberty Project, 213MW Hubco Norowal project, 209MW Halmore Bhiki project, 176MW Fauji Dharki, 72MW Khan Khwar Hydro and 300MW Chashma Nuclear-II. Among them three projects had started production while others were in the testing phase and become operational in May this year.

He said that another 300MW power project in Karachi would come into production in a few days and then Pepco would be able to divert a part of its supply to its own system.

He said that Pepco had an agreement with the KESC to supply a maximum of 650MW, but KESC was drawing 750MW because technically it was not possible to limit its off-take to committed quantity.

He said the power generation would improve in coming days because hydropower production had increased.

He said that Pepco had committed to bringing down shortfall to 2,000MW by July this year, resulting in two hours' loadshedding in cities and eight hours in rural areas but he had reservations about these projections. He confirmed that loadshedding in rural areas had recently touched 18 hours a few days ago.

He said the overall water situation would be better than the average of last 10 years because of higher snowfall, but a shortfall had occurred recently as a result of slow snow-melting.