Cir­cu­lar debt

The Pak Banker - - FRONT PAGE -

The trans­mis­sion losses in Pak­istan's en­ergy sec­tor are one of the high­est in the world. In its re­cently is­sued per­for­mance as­sess­ment of GENCOs, Nepra put the en­ergy loss by these state-run power gen­er­a­tion com­pa­nies at a whop­ping 15 bil­lion KWh. An equiv­a­lent fig­ure in dol­lars would be close to $1.5 bil­lion in losses for FY15-FY16. Ac­cord­ing to the Nepra's de­ter­mi­na­tion of 1263MW R-LNG project at Jhang, the to­tal project cost was roughly $800 mil­lion. To quan­tify the op­por­tu­nity cost of this $1.5 bil­lion loss, the govern­ment could have set up al­most two 1263MW R-LNG power plants in­clu­sive of their CAPEX and fi­nanc­ing costs in this amount.

This loss was borne by the tax­payer at the end of the day while GENCOs have paid a pal­try fine of Rs15 mil­lion im­posed by the reg­u­la­tor. It may also be men­tioned here that Nepra also im­posed a fine of Rs5 mil­lion on the Na­tional Trans­mis­sion and Des­patch Com­pany Lim­ited (NTDCL) for fail­ing to com­ply with pre­scribed lim­its for volt­age and fre­quency fluc­tu­a­tions. As things stand to­day, fines alone will not bring about any change in the man­age­ment of state-run in­sti­tu­tions in the power sec­tor. All state en­ter­prises are in bad shape. Over the years that state con­trol has be­come syn­ony­mous with neg­li­gence, poor gov­er­nance and cor­rup­tion.

There are re­ports that the cir­cu­lar debt has reached new heights; al­most dou­bling from the lev­els back in 2013. The high­est fig­ure sug­gested is Rs 922 bil­lion for to­tal cir­cu­lar debt in the coun­try's en­ergy chain, in­clud­ing the Rs 450 parked separately with the Power Hold­ing Pri­vate Lim­ited (PHPL) that has the pur­pose of rais­ing funds from com­mer­cial banks. Re­cently, the Min­istry of Power Divi­sion has re­ported that cir­cu­lar debt has in­creased to over Rs 750 bil­lion, which is a big jump from 2013 lev­els. In 2013, when PML-N govern­ment took charge, it de­cided to elim­i­nate this men­ace in just one go. As a re­sult, the govern­ment ended up pay­ing Rs 480 bil­lion for the debt re­tire­ment. It was well-known that the re­lief from the move would be tem­po­rary, and hence the dragon started lift­ing its head in no time, reach­ing the lev­els it has not seen be­fore.

In Asian De­vel­op­ment Bank's re­cently pub­lished as­sess­ment of $7 bil­lion loan ap­proved in 2005 for the coun­try's en­ergy sec­tor to shape its fu­ture line of ac­tion, cir­cu­lar debt con­tin­ues to be the top power sec­tor chal­lenge. The re­port ti­tled, "Sec­tor As­sis­tance Pro­gramme Eval­u­a­tion (SAPE) for the Pak­istan Power Sec­tor" high­lights that there has been lim­ited ac­tion in ad­dress­ing the un­der­ly­ing causes of the cir­cu­lar debt, which has kept in­vest­ments at less than de­sired lev­els un­til 2017. One un­der­ly­ing fac­tor for the rise in cir­cu­lar debt is a lack of fo­cus on the trans­mis­sion and dis­tri­bu­tion aspect of power sup­ply amid the coun­try's in­creased fo­cus on adding ca­pac­i­ties. The losses in the trans­mis­sion and dis­tri­bu­tion sys­tem have re­mained there for a long time.

Other causes for the cir­cu­lar debt men­ace as high­lighted by ADB in its ear­lier sup­ple­men­tary doc­u­ments still re­main un­ad­dressed at large. These in­clude weak gov­er­nance, de­layed release of Tar­iff Dif­fer­en­tial Sub­sidy by the Fi­nance Min­istry, is­sues in rev­enue col­lec­tion by the dis­tri­bu­tion com­pa­nies that still re­main in some ar­eas, de­lays in tar­iff de­ter­mi­na­tion by Nepra and liq­uid­ity is­sues due to the fuel-price method­ol­ogy. Ex­perts are of the opinion that the only long term so­lu­tion to make the power sec­tor op­er­a­tionally and fi­nan­cially vi­able is through in­creased pri­vate sec­tor par­tic­i­pa­tion.

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