The monster of circular debt.

Byline: IHSAAN AFZAL KHAN

Pakistan's power sector shows that the nation experiences transmission losses, high tariffs, absence of planning and improper policies. These escalate the energy crisis. This crisis in Pakistan is the immediate aftereffect of institutional and administration governance failure in the form of reckless energy policies. This demands an answer to a question that what has been the effect of the ventures from the China-Pakistan Economic Corridor (CPEC), with its highly invested power projects, on the energy crisis? There are 22 CPEC energy projects, of which many have become operational now. The previous regime has taken the nation out of this long prevailing energy shortfall but the miscarried policies of the incumbent regime are leading us to the past again. I believe that the liquidity constraints in the energy sector, is one of the main reasons which have led to fall in power generation. Power generation companies are managing their cash flows by reducing their output and increasing the tariffs to a higher level.

At the point when the PTI government took the charge, the circular debt was at Rs 1.1 trillion after the caretaker government completed its tenure. However, it was just less than Rs1 trillion when the PML(N) government completed its tenure with Shahid Khaqan Abbasi as prime minister. It has now swelled to nearly Rs 2.1 trillion. This shows that the sitting government has piled up more than Rs 1 trillion in circular debt which belies all the claims of the government. It has almost increased twofold the circular debt accumulated in the last 72 years. The IMF has also expressed its sheer dismay over the massive increase of circular debt, even though the current regime itself is working on IMF dictations.

THE reasons behind the increasing circular debt are many but a few crucial ones will be discussed. FIRSTLY, the main reason of circular debt in power sector is that power purchase cost is a passthrough item. Various governments at different points have not allowed the power purchase cost to be recovered from consumers. This pass-on has resulted in the gap in electricity bill and payment made, for example, quarterly adjustment and FPA cost to be passed. This part in circular debt is caused by discrepancies between the government-notified tariff and market rates caused by delays in government adjustments to the tariff and fuel price adjustments. Secondly, the other key reason is unpaid subsidies from...