Even the temporary bailout by the government last year and the subsequent measures like rise in power tariffs didn stop inter-corporate circular debt from brimming. But now the market is hailing the decline in international crude oil prices to bring respite to the circular debt challenge.
But one thing must be set straight: the decline in crude oil prices comes with a host of related issues, and hence might not result in the visible breather being talked about of late. What the market is expecting is that a fall in the furnace oil (FO) prices, and hence the cost of production, resulting from the slide in international crude oil prices will be the trigger, as power generation is highly FO-based. And since winters suffer from low hydro-power generation, power companies will benefit from higher productivity.
While this does have a business sense, it must not be forgotten that the decline in oil prices will also have some not-so-appealing impact on even the large oil marketing companies like PSO, which will witness high inventory losses, in case the inventory is not proactively managed
Experts point towards another lacuna here; with a drop in furnace oil prices, the actual respite in the circular debt menace will only occur if and only the firms do not pass on the cost-benefit to the consumers, leaving little for the government to pour in to meet the gap between the generation-cost and the tariffs.
Providing short-lived relief, a price-decline alone cannot eradicate the circular debt. More than relying on exogenous factors, the government should buckle down to address some of the underlying issues related to the circular debt. Credit should be given where it is due; the government has done relatively well in initiating mega power-generation projects, but here, a word of caution for the government is the further escalation in circular debt when more power enters the national grid. It should, thus, simultaneously work on the distribution and transmission issues like theft and line losses.