Circular debt goes full circle

“Circular Debt is the debt owned by the Power producers to Power Sector entities.” Excuse the capital letters, as the quote comes straight from a document titled “Monitoring Report – MOWP,” uploaded on the Ministry of Water and Power’s website. Not sure if the report has been prepared by the ministry itself, or if a third-party consultant was hired for the purpose. But even a cursory look at the content would tell that it may well be the ministry’s own exercise in self praise.

Try telling this to the IPPs. Especially when they are all over the newspapers appealing, pleading, almost begging to have their dues cleared. It may all be just threats to keep the power plants running and the sovereign guarantees may not be invoked after all. But that is not the point. The fact that it has time and again come to this point – that the IPPs raise voice in no uncertain terms – needs serious attention.

In all likelihood, an interim solution would be reached, and the storm would be delayed for another couple of months, through partial payments. This is what the IPPs have also said; that the amount being considered would suffice for no more than six weeks, and it would be back to square one. Whether the government has the capacity to make payments reminiscent of 2013 is not fully known. But the situation must be pretty grim, even if the numbers are not yet as high as being quoted. The IPPs surely wouldn’t have threatened to invoke sovereign guarantee, had it been even close to manageable.

It has been said time and again, and it never sounds repetitive, that the solutions to the problem are well known, and without addressing the root causes, circular debt would keep coming back. The question arises reading the aforementioned monitoring report on the MoWP: does the government even have realisation of the problem and its gravity? “The buildup of CD since its clearance in 2013 has been reduced as a result of structural reform,” reads another excerpt from the jewel.

So the news is that the structural reforms have actually taken place and the circular debt is well under control. Tariff rationalization was all that was done in the name of reforms, and that was never supposed to be the first step towards reforms. It was always meant to come back and haunt, and haunted it has. Imagine the payables, if the generation goes north of 20,000 MW, much to the pleasure of Khawaja Asif. Imagine if the oil prices go even beyond $60/bbl, let alone any higher. The situation is grave enough to create a bigger hole than 2013.

That said, we should not be worried, as structural reforms have taken place, and the ministry’s performance has been categorised as “highly satisfactory.” Surely, you can’t expect them to beat that.

Also, on a not-so-unrelated note, “the reforms agenda resulted in best practices such as greater disclosure of information (economic merit order, payment data, generation data, NEPRA performance evaluation reports).” Now BR Research would surely love to be enlightened which waters to swim in to find these data nuggets in the world of “greater disclosure of information.”