ISLAMABAD: The energy sector's circular debt is likely to touch Rs 2.7 trillion in fiscal year 2021-22 in case the government fails to earmark adequate resources for subsidy, improve recovery and bring improvement in distribution and transmission system of Discos.
Well-informed sources told Business Recorder that the Power Division has sought subsidy of Rs 501 billion for power sector in FY 2021-22 but it has informally been conveyed that allocation for subsidy will not be more than Rs 330 billion, which implies that the remaining unallocated amount of about Rs 170 billion will be added to the circular debt.
At a recent meeting of the Cabinet Committee on Energy (CCoE) Power Division noted that it is projecting total circular debt at Rs 2.48 trillion by end of current financial year. The amount of energy sector circular debt was Rs 1.1 trillion during the last year of PML-N government, which witnessed a significant increase as the incumbent government failed to take required policy decisions to arrest it due to political compulsions.
The sources said, the government has decided not to increase electricity tariffs as per agreements with international financial institutions in recent days, who have sought alternate plans from the government to deal with the current power sector crisis.
On June 3, 2021, Finance Minister Shaukat Tarin informed the media that the IMF was being given alternate ways of reducing circular debt instead of increasing tariff. He further stated that circular debt is now on the decline and the government will take further steps in this direction.
The government had pledged to pass on Rs 1.39 per unit increase to consumers from June 1, 2021 as an installment of a Rs 3.34 per unit increase determined by Nepra a couple of months ago, of which Rs 1.95 per unit has already being recovered.
On June 2, 2021, during a public hearing on FCA for April, 2021, when Chairman Nepra was asked about the status of determined increase of Rs 1.39 per unit expected to be notified from June 1, 2021, he said it is a complicated issue and it has been decided to replace this impact with some adjustment when the applicability of existing quarterly tariff adjustment expires in September or October.
An official told this scribe that Nepra had determined increase of Rs 3.34 per unit on the basis of rupee dollar parity at Rs 164 which has now come down to Rs 154, which implies that Re 1 is saved whereas adjustments will be for remaining Paisa 39 per unit and tariff will be increased by only a few Paisas.
SAPM on Power and Petroleum, Tabish Gauhar, who is negotiating with the World Bank has shared some initial proposals meant to reduce circular debt. The World Bank is expected to extend a loan of $ 1 billion for the power sector in 2021-22.
The Power Division claims that circular debt will be reduced by 38 per cent to Rs 330 billion at the end of current fiscal year (2020-21) as compared to Rs 538 billion in 2019-20.
The circular debt has witnessed a major drop of Rs 189 billion to Rs 260 billion during the first ten months of current fiscal year as compared to Rs 460 billion during the same period of 2019-20.
The country's energy sector total circular debt was estimated at Rs 2.41 trillion till April this year.
The major portion of circular debt build up amounts to over Rs 100 billion on account of unpaid and unbudgeted subsidies. The losses and inefficiencies of power distribution companies stand at Rs 21 billion.
Payables to IPPs which stood at Rs 1.038 trillion in 2019-20, will increase to Rs 1.432 trillion in 2020-21 whereas payables to Gencos will be Rs 101 billion against Rs 105 billion in 2019-20.
An amount of Rs 208 billion contributes towards a major portion of previous year's adjustment. Nepra's losses calculations are all assumption while the power sector experiences seasonality of losses.
Official documents reveal that loans parked in PHPL account will be Rs 948 billion at the end of current fiscal year as compared to Rs 1.007 trillion last year.
According to break up of Rs 260 billion built up circular debt, an amount of Rs 28 billion is on account of unpaid subsidies, Rs 74 billion unbudgeted subsidies, Rs 61 billion interest charge on delayed payment of IPPs, Rs 29 billion HPL mark up, Rs 60 billion pending generation cost, Rs 61 billion non-payment by K- Electric, Rs 21 billion Discos loss and Rs 99 billion previous adjustments.
Copyright Business Recorder, 2021