Rs 480 bil­lion cir­cu­lar debt cleared

Southasia - - BRIEFING -

De­spite its many faults, the PML-N govern­ment suc­cess­fully cleared the en­ergy sec­tor’s cir­cu­lar debt worth 480 bil­lion ru­pees in just 47 days af­ter com­ing to power.

Cir­cu­lar debt is the amount of cash short­fall within the Cen­tral Power Pur­chas­ing Agency (CPPA) that it can­not pay to power sup­ply com­pa­nies. This short­fall is the re­sult of (a) the dif­fer­ence be­tween the ac­tual cost of pro­vid­ing elec­tric­ity in re­la­tion to rev­enues re­al­ized by the power dis­tri­bu­tion com­pa­nies (DIS­COs) from sales to cus­tomers plus sub­si­dies; and (b) in­suf­fi­cient pay­ments by the DIS­COs to the CPPA out of re­al­ized rev­enue as they give pri­or­ity to their own cash flow needs.

This rev­enue short­fall cas­cades through the en­tire en­ergy sup­ply chain, from elec­tric­ity gen­er­a­tors to fuel sup­pli­ers, re­fin­ers and pro­duc­ers, re­sult­ing in a short­age of fuel sup­ply to the pub­lic sec­tor ther­mal gen­er­at­ing com­pa­nies (GEN­COs), a re­duc­tion in power gen­er­ated by In­de­pen­dent Power Pro­duc­ers (IPPs) and an in­creases in load shed­ding.

The govern­ment cleared the Rs 480 bil­lion owed to power pro­duc­ing en­ti­ties while a bal­ance of Rs 23 bil­lion rep­re­sented the claims pend­ing set­tle­ment. A small amount would be, how­ever, with­held pend­ing clear­ance. The to­tal over­due re­ceiv­ables of IPPs and other GEN­COs stood at a gross trans­ac­tion amount of Rs 503.025 bil­lion but af­ter de­duct­ing the liq­ui­dated dam­ages of Rs 22.919 bil­lion, it come to Rs 480.109 bil­lion, which the govern­ment ac­cord­ingly paid.

The mea­sure not only re­sulted in ad­di­tion of 1700MW to the national grid but also buoyed for­eign in­vestors who are now look­ing for­ward to mak­ing in­vest­ments in the en­ergy sec­tor in Pak­istan. Fi­nance Min­is­ter Ishaq Dar said the cir­cu­lar debt that had been ad­versely af­fect­ing en­ergy pro­duc­tion had been vir­tu­ally set­tled.

The fi­nance min­is­ter fur­ther said that the con­clu­sion of a pro­gramme with the IMF had sent very pos­i­tive signals to the fi­nan­cial world, which had wel­comed the mea­sures taken by Nawaz Sharif for sta­bi­liz­ing the econ­omy and cre­at­ing an in­vestor­friendly cli­mate. Ishaq Dar said the IMF pro­gramme would pro­vide com­fort to the in­vestors and en­hance their con­fi­dence in Pak­istan.

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