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Govt asked to follow Indian model in reducing circular debt

ISLAMABAD: Economic managers of the country have suggested the government to follow the Indian model in curtailing losses and theft faced by power companies, which have been major factors behind the growing circular debt.

The circular debt payable to independent power producers (IPPs) on account of energy supply, capacity charges and interest accrual stood at Rs807.88 billion by December 31, 2018. Overall, receivables of the power sector swelled to Rs1,041 billion, including subsidies of Rs170 billion, as on November 30, 2018.

In a meeting of the Economic Coordination Committee (ECC) of the cabinet, chaired by Finance Minister Asad Umar and held last month, the ministers from economic ministries underscored the need for developing a viable strategy to rein in line losses and power theft in a bid to reduce the circular debt, which was a major threat to the national economy.

Some ECC members pointed out that some Indian cities and states had been successful in controlling line losses and electricity theft which included Delhi, Andhra Pradesh and Maharashtra. They suggested that a study should be undertaken to examine and analyse the measures taken by the Indian states, like massive investment in new transmission lines, to check power-sector losses. The ECC was informed that payables in the energy sector involved major payments to the IPPs, Pakistan State Oil, Sui Northern Gas Pipelines, Sui Southern Gas Company, Pakistan Petroleum Limited, Mari Petroleum and individual power plants running on different fuels.

These pending payments had accumulated over the past five years in the wake of a gap between the electricity purchase price, invoiced by the Central Power Purchasing Agency (CPPA), and the recoveries made by the power distribution companies.

‘Circular debt due to lack of planning, strategy’

It was pointed out that another major reason for the accumulation of circular debt was delay in release of subsidies by the federal government. An archaic transmission and distribution system riddled with theft and wastage was also one of the root causes of the circular debt. A further delay in the determination and imposition of tariffs would create gap between the cost of electricity and the amount recovered from the consumers, the ECC was told.

Syndicated term finance facilities amounting to Rs607.03 billion have already been executed through Power Holding (Private) Limited for clearing repayment liabilities of the distribution companies. The government has decided to acquire a fresh loan from a consortium of Islamic banks by pledging assets of distribution and generation companies as collateral.

The facility was approved by the ECC on November 27, 2018. Approval was also obtained from the board of directors of the distribution companies.

The loan will be used to ease the liquidity crunch in the power sector and an assignment account is being created at the level of CPPA. The assignment account will ensure biannual payments for loan servicing.

The revenue stream for the assignment account will come through regular payments of the distribution companies.

The ECC noted that in the past three months, the power companies had reduced their losses by 1.5% and called it a great achievement. It praised efforts of the Power Division and the initiatives taken by it to curtail losses.

It called for accelerating the campaign against power theft and improving recovery of the outstanding bills.