Government fails to arrest Rs 30.5 billion monthly circular debt growth

The government has failed to check the growth of the inter-circular debt with latest estimates indicating that Rs 30.5 billion is being added to the circular debt every month, it is learnt. An official said that a lot of paper work and meetings have not translated into practical measures by the special Cabinet committee on energy during the last two months.
The committee was established to eliminate the circular debt which is suffocating the liquidity of the power sector. The committee, headed by Finance Minister Dr Abul Hafeez Sheikh, with Ministry of Water and Power Naveed Qamar and Dr Asim Hussain Minister for Petroleum Minister as members, prepared recommendations to improve performance of the power sector, which were approved by the Cabinet on October, 12, 2011 in consultation with all stakeholders. The problem of circular debt, an official said, began to resurface due to tediously slow implementation of the proposed measures and consequently Rs 30.5 billion continues to be added to the circular debt every month.
The amount of Rs 30.5 billion per month is attributable to (i) Rs 2.5 billion on account of the gap between actual line losses of 19.6 percent and 16.5 percent allowed by National Electric Power Regulatory Anteriority (Nepra); (ii) the actual billed amount not recovered accounts for an additional Rs 7 billion to the circular debt; (iii) Rs 2.2 billion on account of interest payment to independent power producers (IPPs); (iv) 0.8 billion GST loss due to non-recovery as well as the fact that GST is not payable by AJK; (v) Rs 2 billion added monthly on account of fuel adjustment lost due to more than 20 percent line losses; (vi) Rs 6 billion due to less supply of gas to four IPPs not accounted in the budget; (vii) Rs 10 billion are added to the circular debt as a result of subsidy for tariff differential under budgeted for the ongoing fiscal year.
Sources said that the Planning Commission, the Ministry of Water and Power and Economic Reforms Unit of Ministry of Finance have been working jointly for the last four years to reform the power sector but to little avail. To date, the government has focused on raising tariffs as a major reform policy whose success is limited as public protests turn violent with 10 to 16 hours load shedding coupled with higher bills than ever before. Improved governance holds the key to power sector reforms and that the government has been lax in undertaking.