Solution to circular debt problem: power ministry seeks 12 percent raise in tariff

The Ministry of Water and Power has sought permission from the Energy Committee, headed by the Finance Minister Dr Abdul Hafeez Shaikh, to increase power tariff by 12 percent--two percent after every two months--to reach full cost recovery level aimed at resolution of inter-circular debt issue on permanent basis, official sources told Business Recorder.
"We believe that non-recovery of bills from public and private sector, irrational tariff differential and rates of agriculture tube wells are the main reasons for the inter-circular debt," sources said. They said that monthly tariff differential is Rs 20 billion, which implies Rs 240 billion per annum.
Another aspect of inter-circular debt is that discos bills of Rs 100 billion but recovery is Rs 88 billion which indicates that total collection differential is Rs 65 billion per annum. Sources said that companies'' lines losses are 19 percent against National Electric Power Regulatory Authority''s (Nepra) approved 16 percent losses.
According to sources, Rs 26 billion is being given as compensation to independent power plants (IPPs), fuel adjustment charges are 80 percent which shows Rs 25 billion loss under this head. Total Rs 120 billion annually or Rs 13 billion monthly, the government additionally provides a subsidy of Rs 7 billion. One Federal Minister says that the issue of inter-circular debt is so complicated that the government''s economic managers are simply unable to deal with it.
"The government has no Chartered Accountant who can work out the exact amount of energy sector circular debt," he said. Asad Umar, Chief Executive of Engro, who was recently in Islamabad, told a group of journalists that investment in the power sector, especially in coal-fired power projects, would remain insignificant until circular debt is resolved on permanent basis.
Advisory Council of IPPs, led by former Secretary, Petroleum, Abdullah Yusuf, has requested the government to immediately inject at least Rs 150 billion to save the IPPs from total closure. The Energy Committee has reviewed the targets of estimated revenue and cost of power purchase for FY12. The budgeted amounts of subsidies for FY12 that have been developed after thorough analysis by Ministry of Water & Power, aided by Pepco and allied finance wings of distribution companies and in consultation between the Ministry of Water and Power and Ministry of Finance have been reviewed by the committee.
The liquidity crunch in the system is a varying figure as it is affected by market prices of fuel, generation mix, sale price of electricity, line losses and collections. The difference between payables and receivables is being continuously monitored and needs to be reduced to a sustainable level. Any weaknesses in the system and their overall effect are being analysed by all stakeholders including Pepco, Nepra, IPPs and discos on continuous basis.