Energy sector circular debt nears Rs 500 billion mark

The country's energy sector is facing about Rs 500 billion circular debt, which includes Rs 301 billion old and Rs 140-150 billion fresh debts which have piled up recently due to inefficient top brass of Pakistan Electric Power Company (Pepco), sources told Business Recorder.
Prime Minister Yousaf Raza Gilani recently chaired an emergency meeting on rising circular debt after Pakistan State Oil (PSO) refused to supply furnace oil to the power sector, and directed Finance Minister Dr Abdul Hafeez Shaikh to resolve the issue.
"We need Rs 140-150 billion on urgent basis to clear overdue invoices for which a mechanism will be devised soon. However, the Finance Ministry is releasing Rs 30 billion immediately to the oil and power companies," sources said. Furnace oil suppliers, including PSO, and independent power producers (IPPs) are crying for clearance of their overdue invoices, but National Transmission and Dispatch Company (NTDC), which deals with this issue, is unable to pay them because of continuing severe financial constraints.
According to sources, the government is planning to float fresh term finance certificates (TFCs) after which these debts would be transferred to the Power Holding Company Limited (PHCL), a subsidiary of the Water and Power Ministry.
"We have to submit a comprehensive circular debt resolution mechanism to the International Monetary Fund (IMF) during upcoming talks," sources said. The government transferred Rs 301 billion circular debt, piled up from 2005 to 2008 to the state owned PHCL through the TFCs that involves the payment of interest on the certificates.
The Pakistan Electric Power Company (Pepco) argues that the federal government is not allowing it to pass on the cost of production to the consumers due to political reasons, whereas Finance Ministry dismissed Pepco's claim as false.
The Finance Ministry, in its counter-claim stated that the federal government had picked up all arrears on account of tariff differential for the period 2004-05 to 2008-09 by taking on Rs 216 billion liabilities. Additional Rs 85 billion was also arranged in September 2009. It may be pointed out that as of June 30, 2006 such unpaid claims were Rs 39 billion. The Finance Ministry further said that despite the commitment to donors that no tariff subsidy would be provided in 2010-11, it allocated an amount of Rs 30 billion, against which Rs 32 billion were released as tariff differential.
Sources in the Ministry of Water and Power claim that the government had agreed with the IMF that two percent tariff would be increased every month to bring it to 24 percent for the year, but after a couple of months tariff was frozen due to political reasons. According to them, the amount of subsidy, which was calculated at Rs 43 billion with 2 percent increase every month, has risen to an estimated Rs 60 billion. The Finance Ministry directed Pakistan Electric Power Company (Pepco) to make payment on monthly basis from its own bill collections to Pakistan State Oil (PSO) in a bid to stop piling up of receivables. Pepco has been further directed to pay at least 20 to 30 percent from its bill collections.
The Finance Ministry in a meeting recently held had agreed to pay Rs 30 billion to PSO to clear its dues against fuel suppliers. "The public sector entities like PSO, Pak Arab Refinery (Parco) and Oil and Gas Development Company Limited (OGDC) are in trouble and have spent money from their own resources to continue fuel supply across the country," sources said, adding that OGDC's receivables against oil refineries and gas distribution companies stand at over Rs 100 billion.
Parco has spent Rs 20 billion to Rs 30 billion from its own resources, whereas other refineries have stopped paying petroleum levy (PL) to government and dues to OGDC on account of crude oil supply. The payables of refineries are more than receivables against PSO. As on February 22, 2011, PSO's total receivables against different clients stood at Rs 158.8 billion: Wapdaa Rs 48.23 billion, Hubco Rs 68.7 billion, Kapco Rs 27.8 billion, PIA Rs 1.28 billion, OGDC Rs 305 million, KESC Rs 1.39 billion, financial charges from PIA Rs 1.017 billion, price differential claims (PDC) on high speed diesel (HSD) Rs 1.382 billion and PDC on imported PMG Rs 4.68 billion. PSO dues are Rs 126.44 billion to local and international fuel suppliers. Its dues to Parco are Rs 27.8 billion, PRL Rs 11.2 billion, NRL Rs 9.245 billion, ARL Rs 32.2 billion and Bosicor Rs 4.7 billion.