Circular debt continues to rise amid surcharge
ISLAMABAD: The circular debt of the power sector is continuing to rise despite a series of surcharges imposed on consumers and other measures taken to contain it under a three-year plan. An official of the water and power ministry said "underbudgeting of power sector subsidy by the finance ministry is emerging as a major stumbling block along with other structural rigidities in the system in controlling the circular debt".
He said the government had allocated a subsidy of Rs98 billion in the 2015-16 budget compared to Rs221 billion in 201415 "to artificially lower budget deficit at the cost of power sector's financial stability". This has been brought to the notice of the prime minister and the finance minister, he added.
The official said that subsidy actually being passed on by distribution companies (ex-Wapda Discos) to residential, agricultural, AJK and Fata consumers was more than Rs200 billion. "How can this be covered with a Rs98 billion budget?" Because of this reason, the circular debt increased although it had been successfully capped in the first year (2015) due to "historical reduction of 5.8 per cent in aggregate technical and commercial (ATC) losses".
A finance ministry spokesman did not agree. In a written reply, he said the government had carefully budgeted Rs118 billion tariff differential subsidy (TDS) for the current year and referred to another Rs20 billion subsidy earmarked for KElectric and Rs98 billion for Discos. He said the TDS for Discos had been worked out by calculating the difference between Nepra-deter mined tariff and effective consumer tariff and the number of units estimated to be sold during the year.
Similarly, the KE subsidy has been estimated after notifications by the government for the fiscal year and adjusting the consumer tariff in line with the power ministry's notifications. "Once the quarterly notifications are applied, the subsidy is estimated to largely fall in line with the budget estimates," he added. Another official said that the circular debt capping plan was based on a number of assumptions and actions planned to be taken by various ministries, but fell as the low oil price bonanza set in. The government started keeping major part of the monthly fuel price adjustment against domestic consumers below 300 units per month as a windfall and did not focus on structural issues - low recoveries and high losses.