Power Sector Circular Debt in Pakistan Reaches Record Rs2.646 Trillion
ISLAMABAD: The power sector circular debt in Pakistan has reached a staggering amount of Rs2.646 trillion by the end of May 2023, marking an increase of Rs394 billion from July 2022 to May 2023, according to a report released by the Ministry of Energy.
Concerns Mounting Over Rising Debt
The mounting debt has become a major concern for the government and power sector policymakers, as it highlights monthly inefficiencies in the energy system, particularly in generation and distribution. This inefficiency is resulting in an additional burden of Rs35.82 billion ($132.2 million) each month.
Tariff Increase Failed to Curb Debt
Despite the government’s implementation of a base tariff increase for electricity in July 2022, following pressure from the International Monetary Fund (IMF), the circular debt has continued to rise. The IMF had demanded tariff measures to reduce the debt and rejected the idea of bridging the gaps in power holding companies.
Structural Issues Remain Unaddressed
The data shows that the cumulative debt volume stood at Rs2.253 trillion by the end of the fiscal year 2021-22 and increased to Rs2.646 trillion by the end of May 2023. This indicates that underlying structural issues in the power sector remain unaddressed, resulting in a significant financial burden on loyal power consumers, amounting to billions of rupees every month.
Payables to Power Producers Surge
During the 11-month period, payables to power producers surged by Rs420 billion to Rs1.771 trillion. State-owned generation companies (GENCOs) also saw their payables to fuel suppliers rise from Rs101 billion to Rs110 billion during the same period.
Positive Development in Power Holding Limited (PHL)
While the circular debt continues to rise, a positive development was observed in the amount of debt parked in Power Holding Limited (PHL), which decreased by Rs35 billion to Rs765 billion from the previous figure of Rs800 billion recorded at the end of June 2022.
DISCOs’ Inefficiencies Add to the Debt Burden
The inefficiencies of power distribution companies (DISCOs) have emerged as a significant burden on the financial health of the power sector. High losses and low bill recoveries contribute to the shortcomings in power transmission and distribution, impeding the sustainable provision of energy services and leading to elevated energy prices and increased business costs.
DISCOs Account for 95% of Debt Increase
During the eleven-month period from July 2022 to May 2023, the power distribution companies (DISCOs) incurred losses and inefficiencies, along with non-recoveries of bills, contributing Rs374 billion to the circular debt. This accounts for 95% of the total addition of Rs394 billion to the overall debt stock. DISCOs’ losses and inefficiencies amounted to Rs125 billion, while low bill recoveries added Rs249 billion during this period.
Breakdown of Circular Debt Additions
The breakdown of circular debt additions further reveals that Rs87 billion was attributed to the payment of interest to power producers on delayed payments. Currently, the government owes Rs1.77 trillion to these generators. Additionally, Rs58 billion was added to the circular debt due to interest payments to banks on the Rs765 billion parked in a power holding company.
Government Imposes Debt Servicing Surcharge
To address this issue, the government has imposed a debt servicing surcharge of Rs3.23 per unit, passing on the cost of inefficiency to power consumers. Furthermore, Rs171 billion was included in the circular debt due to delays in the recovery of generation costs through quarterly and monthly fuel charges adjustments.
Key Points
- The power sector circular debt in Pakistan has reached a staggering amount of Rs2.646 trillion by May 2023, showing an increase of Rs394 billion from July 2022.
- Despite a tariff increase, the debt continues to rise due to underlying structural issues in the sector, burdening power consumers with billions of rupees in additional costs every month.
- Power distribution companies (DISCOs) account for 95% of the debt increase, primarily due to high losses, low bill recoveries, and inefficiencies in power transmission and distribution.
Published in PakWeb, July 05, 2023.
Stay informed and engaged with the PakWeb by following us on Facebook, Twitter, and participating in our Discussion Forums.
