Circular debt in power sector at PKR 2.467tr.

Byline: S. KAMAL HAYDER KAZMI

Pakistan's power sector confronts serious challenges in the form of institutional weaknesses, weak governance and financial sustainability. Despite having surplus supplies consumers are getting not only expensive electricity but sometimes have to face power outages due to inefficiencies in the power system. Inept corporate governance and unsustainable financial management in Pakistan's power companies have led to a chronic shortfall between cash inflows and outflows famously known as circular debt. Presently Power sector's circular debt ballooned to Rs 2.467 trillion or 3.8 percent of GDP and 5.6 percent of Pakistan's total debt in the outgoing fiscal year, the Economic Survey for FY2022 revealed, posing a serious threat to the fiscal sustainability of the sector. Statistics showed that over the years, the debt fast grew in size. In 2008, it was recorded Rs 161 billion, in 2013, it was at Rs 450 billion then stood Rs 1.148 trillion in 2018.

The Pakistan Economic Survey 2021/22 while quoting the Central Power Purchasing Agency (CPPA) fact said that by end-March 2022, the debt now stands at Rs 2.467 trillion. In the Economic survey, the government warns that if the circular debt grows at the same pace and is not muzzled, it is estimated to reach Rs 4.0 trillion by 2025. This demands the urgency of reforms in the energy sector. At the same time, the gas sector's circular debt is also increasing. Dependence on liquefied natural gas (LNG) has increased in recent years due to depleting indigenous natural gas deposits. Over the past three years, the stock of the circular debt in the gas sector has nearly doubled to Rs650 billion increasing from Rs350 billion in 2018. The Experts of the sector identified that each year; hundreds of billions of rupees' capacity payments are made to the independent power generators. But at the same time, besides capacity payments, the inefficiencies of the power distribution companies (DISCOs) are a main drag on the sector's financial health owing to high losses and low recoveries.

It is said that the power transmission and distribution inefficiencies are hampering the sustainable deliveries of energy services, leading to higher energy prices and increased costs of doing business. Statistics also showed that installed electricity generation capacity also grew 11.5 percent (4,296MWs) in July-April 2021-22 to 41,557MW from 37,261MWs in the corresponding period of last year. Historically...