The debt spiral needs to end

It seems that the heat of summer has started to show on the energy sector, as the inter-corporate circular debt shows no signs of receding - not anytime soon and probably not in times not-so-soon. The Energy Conference too ended as what an expert called a "futile activity", where all participants acknowledged the problem, with hardly any focus on the solution.
And the one solution that was proposed by none other than the most-severely hit entity by the circular debt - the PSO - received heavy criticism from the countrys largest E&P player, OGDC. The proposal was to securitize OGDCs dividends to eliminate circular debt by distributing all profits as dividends. The idea was to ease the governments fiscal constraints, which keep it shy from paying the tariff differential to the power producers.
The OGDC has out rightly rejected the proposal and rather asked the PSO to focus on its own business, which has a large chunk in the circular debt. "The idea is absolutely impractical...the OGDC needs to retain money for its core business of exploration. Solving the circular debt should not solely be OGDCs job," said an energy representative previously associated with OGDC.
The fact remains that the government continues to be at the core of the circular debt, which the KESC in its presentation at the Energy conference rightly termed as the debt spiral. The government is likely to miss the power sector subsidy target for the third year running, as the tariff differential subsides are expected to cross Rs 300 billion by the fiscal year end - a mammoth ten times over and above the budgeted amount of Rs 30 billion.
The inability to recover the full cost of power generation remains the root cause of the problem, as the government always seems ready to succumb to political pressures in making tough economic decisions, of which, raising electricity tariffs is one. The limited fiscal space prevents the government to pay off the price differential to the power producers, who, in turn, don pay the fuel suppliers and the spiral goes down to the E&P companies.
Having said that, the discos own billing collection mechanism and the T&D losses contribute significantly to the problem - sadly, the discos do not seem to pay much heed towards it, focussing solely on government-related problems. Ironically, failures in recovering the billed amount and in controlling theft also stem from a visible lack of political will and inaction from the government - and unless the government steps up and enforces its writ, line losses and theft will continue to contribute to the debt spiral.
Not surprisingly, the government itself is the biggest debtor to the discos, despite enjoying uninterrupted power supply. Being a part of the government, these non-paying institutions believe it to be their prerogative not to pay in time or not to pay at all.
It is high time - only for the lack of words, as it has been high time for two years now - to introduce and implement power sector reforms. And, as they say, it should start from home by doing away with subsidies, paying the dues, and showing the political will to help reduce line losses and power theft.
For the longer run, the energy mix has to change, without which, complete elimination of circular debt will remain a distant dream. Merely changing and chopping the boards and issuing TFCs every now and then haven helped and won help much.