Circular debt swells to Rs 218 billion

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ISLAMABAD : Energy sector s circular debt has reportedly reached Rs 218 billion, in addition to Rs about 280 billion already on the books of Power Holding Company Limited (PHCL). Out of this total Rs 121 billion is payable to Independent Power Producers (IPPs) that are, in turn, facing liquidity problems that disables them from paying to Pakistan State Oil (PSO) and gas companies. This was disclosed at a recent meeting presided over by the Minister for Water and Power, Syed Naveed Qamar. The federal government has recently paid Rs 120 billion to resolve financial crises faced by the energy sector, however, this amount is considered insufficient to deal with the gigantic issue. One of the key concerns of international financial institutions like the International Monetary Fund (IMF), World Bank and Asian Development (ADB), remains the circular debt, which the present economic managers have failed to resolve, commented a power sector analyst. The power sector reforms, identified by the International Monetary Fund and agreed by the government as noted in its first Letter of Intent submitted on November 20, 2008 to the IMF Board, included a two-pronged strategy-increase tariffs, reduce losses/theft to achieve full cost recovery and eliminate circular debt. Today thermal power stations are unable to operate at optimum capacity due to non availability of furnace oil and if the government resolves circular debt issue, load shedding duration can be minimised, the sources added. Gencos are operating at 25-30 per cent efficiency while IPPs average is 45 per cent. New technology yields 60 per cent. Annual loss is estimated at over Rs 40 billion through continuos use of inefficient plants. Other reasons for circular debt are: (i) non payment by the provincial governments and AJK; (ii) over billing and non collection of the bills especially in Hesco, Pesco and Qesco; and (iii) disallowing any expenditure by the regulator. Reported distribution losses are 20 per cent whereas actual losses are closer to 27 per cent. Each percentage loss adds Rs 6 billion to cost of generation. Planning Commission argues that the existing stock of circular debt will be paid off and recurrence avoided by putting in place a revised tariff determination mechanism for Nepra and an amendment to the act to enable cost recovery and automatic application of determined tariffs. The Commission also claims that the average collection by Pepco entities on each rupee billed is 80 paisa and no organisation can sustain such haemorrhage. The current average price is about Rs 1. 65 per unit less than the average Nepra determined price of Rs 9. 56 per unit. This determination includes 10 per cent of line losses, which can be directly attributed to theft and inefficiency. The country is facing about 6000 MW shortfall in electricity mainly due to circular debt, inefficient transmission and distribution system and over and above incompetent teams dealing with these issues, commented another power sector analyst. According to him, Deputy Chairman Planning Commission, Nadeem-ul-Haq has taken over the Ministry of Water and Power as the incumbent Secretary, Javed Iqbal and his team including PPIB and Pepco officials are considered incompetent to deal with the energy sector issues.

Courtesy : Business Recorder

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