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ISLAMABAD: The government said on Friday that annual Rs450 billion was being added to the circular debt on account of over and above the losses allowed by the National Electric Power Regulatory Authority (Nepra) and capacity payment of unutilised electricity as members of a parliamentary panel said that the power sector problems were increasingly becoming problematic for the economy.

A meeting of the Finance Committee of the National Assembly presided over by Faiz Ullah on Friday was briefed by senior officials of the Finance Ministry about circular debt and its financial implication and stated that Rs225 billion was being added to the circular debt on account of 15 percent losses – less recoveries and more than allowed transmission and distribution losses by the Nepra and an equal amount Rs225 billion was being added on account of capacity payment.

The Finance Ministry was unable to explain the reasons for acceleration in circular debt, despite a massive increase in power tariff during the last two and half years and stated a circular debt management plan (CDMP) has been designed with the World Bank to control the flow of circular debt, rising Rs45 billion on a monthly basis.

The plan envisages improvement in operational efficiencies, providing targeted subsidies.

The meeting was informed that annual breakup of circular debt included 60 percent purchase, 20 percent losses, and 20 percent late payment surcharge (LPS).

The committee was further informed that the government has taken into its own account Rs1,006 billion circular debt stock parked in the PHPL and would pay Rs72 billion as interest cost of it in the current fiscal year.

The government has already made payment of Rs28 billion out of Rs72 billion payable on account of interest and the remaining Rs46 billion would be cleared before the end of the fiscal year.

The secretary Finance Ministry stated that circular debt was of two types debt stock and flow and circular debt build-up because actual cost of the power in not reflected in bills and there is very low recovery in some provinces.

Line losses and obsolete distribution network and capacity payment are other factors for a surge in circular debt.

The government has decided to settle the payable circular debt of over Rs1,300 billion by taking certain measures such as engaging the IPPs for voluntary reduction in tariff and settlement of Rs403 billion in two tranches i.e. 40 percent in next couple of weeks and 60 percent in August.

He said that payment of first installment would be made when circular tariff will be reduced by Re1 per unit to Rs1.5 per unit subsequent to operation and maintenance expenditure reduction by 11 percent whose impact would be on tariff by Re1 to Rs1.5 per unit.

The committee members expressed their grave concerns about the policies adopted by the government to arrest the rise in circular debt.

The Committee members were of the view that an increase in circular debt will create huge problems for the economy, especially towards the smooth functioning of the industries.

After detailed discussion, the Committee unanimously decided that the Power Division may be invited in the next meeting of the Committee for further deliberations in this regard.

Muhammad Ali Malik, director, State Bank of Pakistan (SBP) while briefing the committee about the foreign exchange reserves and expected pressure especially when the IMF programme was not resumed, stated the $2.2 billion payment would be due in the current fiscal year.

However, he said that the government was expecting inflow more than the due payment from the IMF, from multilaterals for project loans as well as other initiatives besides some borrowing by the government.

He also said that when the economy would open up and travel would resume, the remittances may face a slight decline.

He said that $4.6 billion maturity would be in a year’s time and some of them would be due in next three months, whereas, Chinese swap liabilities stood at $4.6 billion.

He agreed with the members that despite an increase in foreign exchange reserves by Rs6 billion and improvement in buffer by $9.6 billion, there is a long way to go to overcome the challenge but argued that things are on the right path as $480 million have been received in Roshan digital accounts so far.

The Committee members have expressed their apprehensions with regard to expecting pressure on foreign reserves due to upcoming repayment schedules, in case the suspension of the IMF Program. However, the director SBP responded that Chinese debt repayments can be rollover.

Copyright Business Recorder, 2021

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