Circular debt threatens energy security, consumer welfare: Report.

• Position: Report

ISLAMABAD -- A new report issued by an independent think tank PRIME has warned that continuous build-up of the circular debt, which stands at an all-time high of 5.2% of GDP, poses a threat to the country's energy security and consumer welfare.

The report acknowledges the federal government's efforts to reduce capacity payment liabilities and its plans to introduce a long-overdue competitive market regime. The Prime report mentions that the share of renewables in the energy mix has gone down from 8.2% to 2.4%.

The key messages of the report are: for every unit of electricity produced, on average only Rs. 14 is collected as opposed to its real cost of Rs. 21, adding the difference of Rs. 7 to the ever-mounting ledger of circular debt. The circular debt build-up is attributed to multiple causes namely, tariff differential subsidy, capacity payments, T and D and recovery losses, and governance issues. The report establishes that this has led to an unprecedented level of circular debt amounting to Rs2.3 tr.

Further, the incumbent government's mandate for alleviating the ailments of the power sector, by introducing green energy into the mix, has yet to see the light of day. The share of renewables in the energy mix has decreased, as opposed to rising per the PTI manifesto. The report further highlights the key costs of circular debt: for end-consumer the high energy tariffs, power outages and for investors their constrained...