The galloping gap.

The monster of circular debt keeps growing in the power sector.

Bad governance is the overwhelming source of the circular debt build-up that is officially projected to cross the Rs2.8 trillion mark by June 30. This is almost half of the country's about Rs5.5tr total tax revenue this year.

This means an addition of Rs500 billion during the current fiscal year at an average rate of almost Rs42bn per month, according to a report submitted by the Power Division to the Cabinet Committee on Energy (CCOE) last week.

The report is based on actual verified data of the circular debt as of Nov 30, 2020 and projected over the remaining period of 2020-21. It contains the breakdown of the circular debt in terms of operational/non-operational, comparison of last and current year's build-up, and paid/unpaid and budgeted/unbudgeted subsidy payments.

Strikingly, the combination of lopsided decision-making, inaccurate projections, poor management and inefficient operations, non-payment by the public sector and a handicapped regulatory mechanism emerge as the root cause of the debt build-up. Simply put, the government is responsible for the mess.

The circular debt will increase by Rs152bn in 2020-21 due to distribution losses (Rs35bn) and under-recoveries (Rs117bn)

The outcome, however, is the multiplying costs to the honest and paying consumers in the shape of repeated tariff increases in various shapes and heads - another hike of about Rs3.34 per unit is on the cards. The government legally empowers power companies through the regulatory process to charge the cost of a little over 15pc losses in tariff besides the cost of bad governance and non-payments in the shape of the financing cost surcharge, quarterly and monthly adjustments and taxes.

The last fiscal year ended with a circular debt of Rs2.15tr, with an annual increase of Rs538bn or a monthly increase of Rs44.8bn. As of Nov 30, 2020, the total circular debt increased to Rs2.3tr, showing an increase of Rs156bn in the first five months or Rs31.2bn per month. During the same five months last fiscal year, the circular debt had increased by Rs179bn at the rate of Rs35.8bn per month.

Of the stock of Rs2.3tr on Nov 30, 2020, Rs1.2tr is payable to independent power producers (IPPs), Rs996bn parked in Power Holding Private Ltd (PHPL) of the Power Division and Rs97bn payable by generation companies to fuel suppliers. The payables to IPPs are estimated to surge beyond Rs1.7tr by the end of the current fiscal...