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ISLAMABAD: The Power Division has reportedly held National Electric Regulatory Authority (Nepra) responsible for addition of Rs 500 billion to the circular debt flow in FY 2021-22 totaling Rs 850 billion due to delay in notifications for rebasing of Rs 7.91 per unit and Quarterly Tariff Adjustment (QTA) determination.

Background interaction with officials dealing with the financial issues of power sector indicates that the Power Division was expecting growth of Rs350 billion in flow of circular debt during FY 2021-22 subject to systematic actions by the power regulator. However, delays in rebasing, QTA determination and two months lag in recovery of FCA have added around Rs500 billion to the circular debt.

“Main issue of power sector is delay in notifications of re-basing of Discos’ tariffs and Quarterly Tariff Adjustment (QTA) which was the responsibility of National Electric Power Regulatory Authority (NEPRA),” the official said.

The country’s circular debt, which has been a serious concern for International Financial Institutions (including IMF, World Bank and ADB) is expected to be over Rs2.253 trillion by end 2021-22, with an addition of Rs 850 billion due to payments to the IPPs as per agreements and for payment to IPPs for fuel.

The IMF, in its press release on Staff Level Agreement with Pakistan, commented on the power sector situation that “on the back of weak implementation of the previously agreed plan, the power sector circular debt flow is expected to grow significantly to about Rs 850 billion in FY22, overshooting program targets, threatening the power sector’s viability, and leading to frequent power outages.”

The Fund noted that the authorities have committed to resuming reforms, critically, the timely adjustment of power tariff including for the delayed annual rebasing and quarterly adjustments, to improve the situation in the power sector and limit load shedding.

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According to the sources, circular debt stock which was $13.5 billion during FY20 (5.6 percent of GDP), was projected at $11 billion (4.5 percent of GDP) in 2021 but will be around $12.5 billion by end FY 22.

The Circular Debt Management Plan (CDMP) was updated in November 2021 with actualized value of monthly Circular Debt reports submitted to the Cabinet and quarterly reports shared with the IMF that are not made public.

The CDMP envisages a gradual decrease of circular debt flow and stock, based on timely tariff adjustments, structural reforms and finalization of historic stock. Circular debt declined from $3.4 billion in FY 2020 to $2 billion in FY 2021, but the latest updated is that CDMP targeted to $1 billion in FY 22 is likely to end up closer to FY21 value.

Although the CD flow and stock are still large, the largely increasing trend from FY 2017-20 has been disrupted. Future success to eliminate CD will depend on government’s ability to continue updating and implementing ambitious CDMPs.

A delayed base tariff adjustment (Rs1.39 per unit from FY21) was notified and effective in November 2021. The FY22 annual rebasing has been delayed.

The World Bank has confirmed that more than Rs500 billion will be added to the circular debt in FY 2021-22 as many prior actions were not implemented by the government.

The sources said the Finance Division has extended the required subsidy to power sector as per allocations in the budget but delay in notification of QTAs and rebasing of tariff has added a substantial amount to the circular debt.

Copyright Business Recorder, 2022

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