"Failure is not an option", the words by Khawaja Asif, the likely man to manage the countrys power sector affairs, speak volumes of how seriously the new government is looking to tackle the energy sector crisis. Sanity has prevailed in the PML-N ranks after the elections, as the leadership now acknowledges that the mess cannot be wiped away overnight.
Of the issues to be tackled up front, circular debt undoubtedly poses the stiffest challenge. The news is making rounds that the PML-N is considering issuing T-bills worth Rs500 billion to clear the circular debt stock once and for all.
The idea sounds noble, but it is not for the first time that such measures are being proposed to address the circular debt issue. Three such attempts in the past, albeit of lesser magnitude, have not worked - things have to change drastically at the structural level for it to work this time.
But there are a few things that need to be cleared before everyone starts thinking it will resolve the circular debt.
For starters, the quoted amount of Rs500 billion is overstated by some distance. To clear a stock of Rs500 billion, roughly half the amount suffices as there is a multiplier effect when it is cleared. One hopes that those at the helm know better than this, instead of stating that Rs500 billion is needed to clear the stock.
Secondly, for the proposed step to bear fruits, there have to be structural changes on grounds, without which, it will remain an exercise in futility. The Planning Commission had earlier recommended in its report on circular debt, that if the circular debt stock is moved to government debt, it should be reallocated in consumers tariffs. Whether or not the PML-N government takes this decision, will be interesting to see, as a failure to do that might not yield the desired result.
One also needs to keep an eye on the upcoming budget. The amount of subsidy the government allocates to the power sector will provide a hint of the extent of power tariff rationalisation the government is planning to undertake.
Under allocation of power subsidy in yesteryears has often resulted in increased circular debt pile. The actual disbursements have been many times higher than the budgeted amount, which results in delay in financing of unplanned subsidies and inflates the circular debt, in addition to interest charges.
Here is hoping that the government would stick to whatever it budgets for power subsidy, which should pave way for tariff rationalisation. In addition, restructuring the management of gencos and discos, improving collection, improving the energy mix, reducing losses are all well known factors that need to be addressed sooner than later to make the T-bill exercise look any good.
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