Rs 480 billion circular debt cleared
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.