ISLAMABAD:
Despite dramatically higher energy rates last year, the coalition government increased the circular debt in the power sector by a net Rs419 billion over the first eight months of the current fiscal year, bringing the overall circular debt to Rs2.67 trillion.
According to sources in the Ministries of Finance and Energy, on average, the growth in circular debt was Rs52.4 billion per month from July to February of FY2022-23.
At the start of the fiscal year, the stock of circular debt was Rs2.253 trillion, but it quickly increased to Rs2.67 trillion, they said. The coalition administration raised power tariffs by Rs7.91 per unit in July of last year following a requirement imposed by the International Monetary Fund (IMF) and World Bank. Yet, the action did not stop the spiralling of circular debt.
According to sources, the payables to electricity producers increased by Rs456 billion, or more than one-third, from Rs1.35 trillion in June last year to Rs1.8 trillion at the end of February.
Nevertheless, during the time under review, the stock of circular debt decreased by Rs35 billion to Rs765 billion. Payables to fuel suppliers added another Rs99 billion to the total.
There haven’t been many initiatives to decrease line theft and losses, significantly contributing to the rise in circular debt.
Power distribution firms’ inefficiency, losses, and decreased bill recovery accounted for an increase of Rs232 billion, or 55%, of the Rs419 billion added to the circular debt.
The government added fifty-nine billion rupees to the circular debt due to losses incurred by electricity distribution corporations. From July to February 2023, the circular debt increased by Rs173 billion due to poor bill recovery.
The Electricity Division notified the IMF and World Bank that it will publish monthly circular debt reports under the amended Circular Debt Management Plan to provide transparency and track performance. Unfortunately, the Power Division broke this promise, ostensibly due to subpar performance.
Last week, the Ministry of Finance provided subsidies totaling Rs103 billion to help offset some of the debt. According to government sources, the Rs103 billion unbudgeted subsidy is the first instalment of an additional Rs335 billion in electricity subsidies that Islamabad committed to pay under a February agreement with the IMF.
Power subsidies, which the government had planned for Rs570 billion for the current fiscal year, will now increase to at least Rs905 billion due to a recent agreement with the IMF.
Despite a significant pricing increase, power sector losses are increasing. For residential customers, farmers, and exporters, the government proposed raising power costs again in February from Rs3.3 to Rs15.52 per unit.
The updated circular debt management plan indicated that by June of this year, the circular debt stock would expand to Rs2.37 trillion despite a significant price increase and an extra Rs335 billion in subsidies. To meet the upwardly revised aim, the government must cut circular debt by Rs297 billion compared to end-February.
When the $6 billion rescue agreement was signed, Pakistan was only permitted to add Rs39 billion to its circular debt from July to December 2019 and was obliged to maintain a zero flow afterwards. This requirement was not met by constantly raising prices.
However, experts from the Ministry of Energy expected that the impact of recent price increases, including the most recent spike, would be fully felt in the remaining months of the current fiscal year, which would help limit the growth in debt.
Data revealed that the delay in delivering the power subsidies added Rs105 billion to the circular debt over the previous eight months.
Due to interest payments made to electricity producers on delayed payments, Rs73 billion was added to the circular debt. The government currently owes these manufacturers Rs1.8 trillion, and by delaying payments, the debt is growing.
Due to the interest paid to banks on the Rs765 billion parked in the power holding company, an additional Rs35 billion was added to the circular debt. To remedy this issue, the government has implemented a debt servicing penalty of Rs3.23 per unit, meaning that electricity users are now paying for the government’s ineptitude.
According to sources, delays in collecting generation costs through quarterly and monthly fuel charges were to blame for adding Rs95 billion to the circular debt. The stock of debt increased by Rs119 billion due to K-Electric subsidies that were not paid. Nevertheless, with a recent price hike and the finance ministry’s promise to provide Rs335 billion in new grants, the debt accumulation on these two points could be somewhat rectified.
Circular debt increased by Rs659 billion in eight months on a gross basis, while net savings of Rs240 billion were from other sources. According to the sources, this decrease was brought on by the return of principal in the amount of Rs65 billion, the partial payment of subsidies in the amount of Rs33 billion, and stock payments in the amount of Rs31 billion.
