Power sector slippage
Despite official claims to the contrary, load-shedding has returned and, along with it, the demon of circular debt has also raised its ugly head. A new schedule of loadshedding has been announced both for rural and urban areas. The root cause of the problem is circular debt. Last year in July, the PML-N government had announced that circular debt had been eliminated with the retirement of Rs480 billion. But two months later reports began to appear in the Press that power sector receivables had again mounted to more than Rs400 billion.
Some time back the State Bank mentioned the growing circular debt as a threat to the country's fiscal stability. Recently official representatives of the National Transmission & Despatch Company informed the Senate that circular debt had again swollen to billions of rupees which was payable to power generation companies alone. One year back, IMF asked for a complete audit of the circular debt to determine the exact size of the outstanding amount. According to media reports, in the last few months the liabilities have continued to mount and reached the figure of more than Rs800 billion.
The government is at a loss how to tackle the problem. How is it that you clear the debt and it returns in no time to haunt you? Surely, there is something seriously wrong somewhere in the system due to which the problem of circular debt refuses to go away. It may be recalled here that besides last year's massive debt repayments, efforts were made later, too, to clear the debt but the situation only worsened with time. Most of the circular debt is accounted for by pending payments to the power producing plants and the fuel suppliers.
Where lies the rub? Why despite an increase in revenue resulting from a substantial hike in power tariff circular debt is back again? According to experts, the major reasons for circular debt accumulation include failure on the part of the authorities concerned to undertake structural reforms, delays in the privatisation process and continuing inefficiencies at all levels ranging from generation, transmission, distribution and non-recovery of outstanding bills. The system is shot through and through with corruption which results in tremendous loss of revenue. There is total lack of transparency, and the vested interests in the sector stubbornly resist any reform measures.
In the given circumstances, the power bureaucracy which has signally failed to deliver should be given a shake-up and professionals should be inducted to manage the power sector. Among other things, it should be made mandatory for the power sector managers to release operational and financial data and details on a regular basis so that policy makers as well as the general public may know where the fault lines are and how these can be corrected. It has also been suggested that all discretionary authority should be done away with and independent boards should be formed to make policies and supervise operational details on a regular basis to plug leakages and eliminate wastage.
The present government has taken the easy route of cutting subsidies and raising tariff to tackle the issue of circular debt. But this is a counter-productive approach. Transmission losses, estimated to be as high as 30-35 percent, are a major drain on the sector. Unless these losses are minimized, power tariff hike alone won't help much. The consumer is already overburdened. He should not be burdened further.