Main Story

Cir­cu­lar debt – a vi­cious cy­cle of un­paid bills The Hows and Whys of Cir­cu­lar Debt

Enterprise - - Contents - By Jawaid Mirza

Are­cent re­port of the State Bank of Pak­istan has said the prob­lems in the en­ergy sys­tem have wors­ened as re­flected in the per­sis­tence of load man­age­ment and the re-emer­gence of in­ter-cor­po­rate cir­cu­lar debt. Cir­cu­lar debt, - a vi­cious cy­cle of un­paid bills run­ning through the en­tire power-gen­er­a­tion chain, has swollen to nearly 2.0 per­cent of GDP and is threat­en­ing the very func­tion­ing of the en­ergy sec­tor.

The gov­ern­ment, in or­der to limit the ac­cu­mu­la­tion of cir­cu­lar debt, has im­posed a sur­charge of Rs 0.30/ unit from Oc­to­ber 2014 fol­low­ing soft crude prices. The adjustment im­plied an ef­fec­tive in­crease of 2.5 per­cent in elec­tric­ity tar­iffs and the gov­ern­ment is planned to make more ad­just­ments in Jan­uary and Fe­bru­ary 2015 to re­duce elec­tric­ity sub­si­dies to 0.7 per­cent of GDP.

The cur­rent fis­cal year started on a pos­i­tive note, when the gov­ern­ment set­tled cir­cu­lar debt of Rs 500 bil­lion in June 2013. Fur­ther­more, the Pak­istan Mus­lim League’s gov­ern­ment was also showed its com­mit­ment to re­solve the root causes for the power cri­sis.

The gov­ern­ment then vowed to im­ple­ment a time­bound plan to tackle price dis­tor­tions; in­ad­e­quate col­lec­tions; costly and poorly tar­geted sub­si­dies; gov­er­nance and reg­u­la­tory de­fi­cien­cies; and low ef­fi­ciency in the sup­ply and dis­tri­bu­tion of en­ergy.

Un­for­tu­nately, most of the needed re­forms, in­clud­ing pri­va­ti­za­tion of dis­tri­bu­tion com­pa­nies; in­crease in house­hold tar­iffs; price ra­tio­nal­iza­tion of CNG; and lower pri­or­ity to house­holds in gas al­lo­ca­tions, ei­ther could not be ini­ti­ated, or made very slow progress. The de­mand­sup­ply gap hov­ered around 4,000 megawatts dur­ing the year and showed a marked de­te­ri­o­ra­tion.

Qasim Niaz, Chair­man IPPs Ad­vi­sory Com­mit­tee (IPPAC), said the gov­ern­ment has made some pay­ments to the power pro­duc­ers to run their plants on max­i­mum ca­pac­ity as hy­dro­elec­tric­ity fell in win­ters. How­ever, the ini­tia­tive is not a sus­tain­able so­lu­tion.

“The gov­ern­ment should avoid de­lay in pay­ments, which would cur­tail ac­cu­mu­la­tion of cir­cu­lar debt and en­able IPPs to run on max­i­mum ca­pac­ity,” Niaz said.

An­a­lysts said the vi­cious cy­cle of debt once again bogged down en­ergy sup­ply chain as power dis­trib­u­tors de­lay pay­ments to gen­er­a­tors who, in turn, face dif­fi­culty in clear­ing dues of fuel sup­pli­ers like Pak­istan State Oil.

An ex­pen­sive fuel mix is partly blamed for the coun­try’s en­ergy woes. The av­er­age fuel com­po­nent of gen­er­a­tion cost on fur­nace oil has in­creased to Rs19/kilo­watt hour in 2013 from Rs12 in 2011, while gen­er­a­tion cost on coal is around Rs3/unit.

Still there has been no sig­nif­i­cant progress made on the coal side. Although, a num­ber of power pro­duc­ers an­nounced to con­vert to coal, none has been able to achieve the fi­nan­cial close so far pri­mar­ily be­cause of the lethar­gic at­ti­tude of the Na­tional Elec­tric Power Reg­u­la­tory Au­thor­ity (NEPRA).

“Vested in­ter­est groups mainly the in­fa­mous oil mafia in the coun­try, keep bring­ing up frivolous points against coal, which is cost­ing $700,000/day to con­sumers of Karachi,” an of­fi­cial of an IPP in­tend­ing to con­vert to coal said. “Run­ning a 420 megawatts plant on fur­nace oil costs $500 mil­lion a year and it would cost less than $250 mil­lion on coal.

“The ad­dic­tion to oil is set to be re­placed by ad­dic­tion to nat­u­ral gas/LNG. LNG is bet­ter than oil but still more ex­pen­sive than coal,” he said.

The cen­tral bank re­port said en­ergy con­ser­va­tion must be pro­moted to man­age the de­mand-sup­ply gap in the short-run along with sup­ply ini­tia­tives to find a long-term so­lu­tion of the is­sue. On the de­mand side, no pol­icy ini­tia­tive was im­ple­mented to ra­tio­nal­ize power

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.