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ISLAMABD: With the members expressing concern over flow of circular debt, the government, on Tuesday, informed the Finance Standing Committee of the National Assembly that Rs436 billion would be added to the circular debt during the ongoing fiscal year to take the total stock to Rs2.6 trillion by June 2021.

A meeting of the National Assembly’s Standing Committee on Finance presided over by Faiz Ullah was given a briefing by the Power Division on circular debt and its financial implications for the budget, and Additional Secretary Power Division Waseem Mukhtiar stated that with adjustment of Rs64 billion and a recent increase in electricity tariff, circular debt is now projected at Rs2.6 trillion from Rs2.8 trillion by June 2021.

The chairman of the committee, however, stated that the documents provided to the committee indicate an increase of Rs500 billion in the circular debt in the ongoing fiscal year that would take the total quantum to Rs2.8 trillion by June 2021.

Mukhtiar further stated that circular debt increased to Rs2,303 billion by the end of December 2020 from Rs2,150 billion in June 2020.

The committee was informed that additional subsidy of Rs197 billion would be required in the current fiscal year, and if the government continued with providing the relief in electricity tariff in the next fiscal year a subsidy of Rs500 billion would be required.

The Power Division also acknowledged that there was almost 100 percent increases in electricity tariff for low-end consumers during the last two and a half years as tariff for those consuming up to 50 units had gone up from Rs2 per unit to Rs3.95 per unit as committee members inquired from the official of the Power Division with regards to plan to control the flow of circular debt.

Hina Rabbai Khar, a member of the committee, said there was a 100 percent increase in electricity tariff for life-line consumers.

Mukhtiar also explained to the committee about the components of circular debt as 3.5 percent technical losses of distribution companies over and above permitted by the National Electric Power Regulatory Authority (Nepra), inefficacies of the Discos, and non-payment by the KE, adding that “each percent loss more than permitted by the Nepra contributes per annum [to the circular debt] an amount equal to Rs17 billion and Discos’ inefficiencies were adding Rs170 billion [to the circular debt] and Rs100 billion is non-payment by the KE.”

The Secretary Finance, in response to members’ concern that the subsidy for the power sector was under budgeted, stated that the subsidy of Rs140 billion for the power sector was budgeted on the assumption of providing targeted subsides as part of reforms but have been slightly delayed.

The Finance Ministry has acknowledged that circular debt parked in Power Holding Private Limited (PHPL) has been converted into country’s total debt during the current fiscal year and not at the time of preparation of the budget. The ministry said that it would increase the total debt and the debt servicing during the current fiscal year with implication on the budget deficit.

Mukhtiar said a circular debt management plan was being prepared in consultation with the Finance Ministry that envisages benchmarks for improvement in recoveries, time line for tariff increase to recover actual cost of electricity as well as to finalise how to budget the subsidy for the power sector.

The Committee expressed its concern on the proposals received relating to provinces from Finance Division and directed that these Public Sector Development Programme (PSDP) may be forwarded to concerned ministries and Ministry of Planning, Development and Special Initiatives for their consideration. The Committee unanimously approved the Post Office Cash Certificate (Amendment) Bill, 2020 and the Post Office National Savings Certificates (Amendment) Bill, 2020 and the Government Savings Bank (Amendment) Bill, 2020.

Copyright Business Recorder, 2021