ISLAMABAD: Power Division has reportedly failed to prepare a plan for a “viable” energy sector by steering the power sector through longstanding crises and bring circular debt flow to zero.
The International Monetary Fund (IMF) end-of-mission statement dated 10 February stipulates that one of the key priorities is enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.”
Background informal interaction with officials dealing with the fund and World Bank, the lead agency dealing with energy sector, reveal that numbers have been shared with the Fund and World Bank, who have expressed serious reservations on the performance of the energy sector and are insisting on a viable plan.
Presently, the stock of circular debt is Rs 2.6 trillion, which is expected to decline to some extent after clearance of due payables of IPPs. A massive increase in power tariff of over Rs 7 per unit has already been approved for consumers across the country by withdrawing subsidies and imposition of surcharges of Rs 3.39 per unit.
Flow of circular debt is attributed to several parameters inter-alia, Disco’s under recoveries, line losses above regulatory targets, unpaid/ unbudgeted subsidies, pending generation cost, non-payment by K-Electric, mark-ups, etc.
The Power Division, in its revised Circular Debt Management Plan (CDMP), has projected a gap of Rs 952 billion based on latest assumptions for FY 2023 with respect to high fuel prices in the global market, and a new iteration for forecasting of power purchase price, which is around 85-90 per cent of the total power sector revenue requirement.
Power Division has assured the IMF that the gap between the consumer rate and projected cost of supplying power will be mitigated through timely tariff increases; however, there is a palpable trust deficit between the authorities and the Fund premised on similar pledges/ commitments made by authorities in the past but never honoured.
Power Division, in its fresh commitment has assured the IMF that Discos’ losses shall be reduced to 16.27 per cent by end FY -23 from existing losses of 16.85 per cent against NEPRA target of 11.70 per cent.
Power, Division, in a revised CDMP has projected it would generate Rs 355 billion through proper budgeting of subsidies coordinated with tariffs notifications. It is also expecting to recover Rs 65 billion from agriculture sector by withdrawing ZRI and Kissan packages from March 31, 2023. In addition, Rs 35 billion additional subsidy has been projected to curtail circular debt flow to the minimum possible level by June 2023.
Power Division maintains that power sector’s total PHL loans was Rs 800 billion by end June-2022. To recover the mark-up portion of the loans amounting to Rs 246 billion, there is already a surcharge of Rs 0.43 per unit levied in the consumer bill which is not sufficient to cover mark-up charges of total loans. As on December 2022, around Rs 224 billion has been paid as interest from electricity generation portion.
Addition in circular debt due to PHL mark-up payments from own sources is projected to be around Rs76 billion, which will be recovered from consumers (except non-ToU domestic consumers using up to 300 units and private agriculture consumers) in the four-month period - March-23 to June 23 - through an additional surcharge of Rs 3.39 per unit.
Further no cash flow exists to service the principal amount of PHL debt. In order to retire the old stock the GoP will transfer the debt as public debt and will allocate a budget to retire the public debt including roll over of Rs 283 billion facilities by March-23.
Power Division has also acknowledged that under recoveries of Discos have resulted in cash loss of Rs 180 billion in FY 2022 which has added to the circular debt. This is inclusive of non-recovery from Balochistan agriculture consumers and under-recovery of AJ&K, currently paying a rate of Rs 2.59 per unit against the GoP notified rates.
Power Division has claimed recovery ratio in FY-22 (excluding AJ&K) against 100 per cent NEPRA target was 90.43 per cent. In the start of FY-23, recoveries have deteriorated due to the devastating floods and high tariff increase. Therefore, in CDMP FY-23, it is assumed that the recovery ratios shall be maintained at 90 per cent. This implies that 10 per cent less recovery will also be added to the overall stock of circular debt.
Power Division is assuming Rs 31 billion recovery of deferred FCAs, Rs 14 billion on account of GST and taxes on collection basis, Rs 5 billion as reimbursement from FBR.
The government is expecting recovery of Rs 73 billion from QTAs till August-23, Rs 12 billion through improvements of Discos’ losses to 16.27 per cent, Rs 11 billion as mark-up saving due to IPP stock payment, Rs 31 billion FCA recovery till June 23, Rs 68 billion PHL mark-up surcharge recovery, Rs 51 billion from discontinuation of ZRI package from March 1, 2023, Rs 14 billion of Kissan package from March 1, 2023, Rs 14 billion GST and taxes on collection basis, Rs 5 billion reimbursement from FBR and Rs 335 billion additional subsidy.
The projected circular debt flow for the year will be Rs 336 billion. However, after repayment of budgeted PHL principal of Rs 35 billion and budgeted stock clearance of IPPs of Rs 180 billion, revised circular debt projection will be Rs 122 billion.
The government is projecting circular debt stock of Rs 2.374 trillion, of which amount parked in PHL will be Rs 765 billion, payables to power producers Rs 1.509 trillion and Gencos’ payable to fuel suppliers Rs 100 billion.
Copyright Business Recorder, 2023