Cir­cu­lar debt again

The Pak Banker - - FRONT PAGE -

The ris­ing bur­den of cir­cu­lar debt has be­come a se­ri­ous is­sue. Ac­cord­ing to the lat­est re­ports, the con­stant flow of cir­cu­lar debt has built up to Rs566 bil­lion in ad­di­tion to old stocks of about Rs500bn in a spe­cial pur­pose ac­count, ac­cu­mu­lat­ing the to­tal li­a­bil­ity to about Rs1.066 tril­lion. This was re­ported to a spe­cial com­mit­tee of the Sen­ate on cir­cu­lar debt by the Power Di­vi­sion at a meet­ing a few days ago where the power dis­tri­bu­tion com­pa­nies claimed that al­most Rs100bn cir­cu­lar debt was caused by un­jus­ti­fied sales tax col­lec­tions by the Fed­eral Board of Rev­enue even on un­re­alised bills. The meet­ing was also in­formed that a sig­nif­i­cant in­crease in cir­cu­lar debt had ac­cu­mu­lated in the re­cent months af­ter the for­mer PML- N govern­ment de­cided in Oc­to­ber 2017 to end load­shed­ding even in ar­eas with high losses and theft.

The Dis­cos have com­plained that they were charged GST on to­tal turnover and sub­sidy paid by the govern­ment in­stead of the 2.1pc mar­gins. They said for­mer ad­viser on fi­nance Dr Sal­man Shah had ad­dressed the is­sue but it has resur­faced since 2013 and they are be­ing sub­jected to over- tax­a­tion. Ac­cord­ing to a re­port, the pre­vi­ous govern­ment was con­vinced by the Power Di­vi­sion and a sum­mary was also moved with con­sen­sus for the re­moval of an in­her­ent anom­aly through the fi­nance bill but it some­how got through. In this con­nec­tion, the Sen­ate Spe­cial Com­mit­tee has em­pha­sised that both the govern­ment and peo­ple of the coun­try should be sen­si­tised to the cir­cu­lar debt is­sue and the prob­lem must be ad­dressed im­me­di­ately.

The Min­istry of En­ergy has pro­posed that in or­der to elim­i­nate the cir­cu­lar debt, it is nec­es­sary to re­frame poli­cies, es­pe­cially those that per­tain to power dis­tri­bu­tion com­pa­nies. A com­pre­hen­sive re­port by the Power Di­vi­sion has thrown light on over­all sit­u­a­tion of the en­ergy sec­tor and dis­cussed re­me­dial mea­sures that would be taken to re­duce the debt. It has been pointed out that in an at­tempt to make progress, poli­cies must be re­framed and boards of power dis­tri­bu­tion com­pa­nies must com­prise pro­fes­sion­als hav­ing no vested in­ter­est. This is not dif­fi­cult as ev­ery dis­tri­bu­tion com­pany has its own plan­ning wing, which should come up with new ideas and so­lu­tions to ad­dress the sec­tor's woes.

A se­ri­ous prob­lem of the en­ergy sec­tor is ris­ing trans­mis­sion loss. The loss in some cases is as high as 30 per­cent. Some time back, keep­ing in view the grow­ing de­mand, a plan had been put in place to up­grade the trans­mis­sion lines but noth­ing came out of it. The govern­ment re­cently in­structed that elec­tric­ity must be sup­plied to all ar­eas with­out any in­ter­rup­tion and re­gard­less of the bill re­cov­ery sta­tus. This has caused an in­crease in line losses that has put more bur­den on power pro­duc­ers and dis­trib­u­tors and in­creased the cir­cu­lar debt.

In or­der to ad­dress the is­sue of cir­cu­lar debt, an im­por­tant need is to col­lect prov­ince- wise de­tails of in­dus­trial, do­mes­tic and com­mer­cial de­fault­ers. Equally im­por­tant is the need to find out- of- the- box so­lu­tions to the chal­lenges fac­ing the power sec­tor. In this re­gard, the plan­ning wings of the com­pa­nies need to be more proac­tive. Theft has to be stopped with a heavy hand and a new drive needs to be launched for bill re­cov­ery, es­pe­cially from govern­ment de­part­ments which are among the big­gest de­fault­ers. Cor­rup­tion also needs to be curbed which is a prin­ci­pal rea­son for the mul­ti­ple woes the power sec­tor suf­fers from, in­clud­ing cir­cu­lar debt.

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