A Circular Debt Management Plan was shared by government with the World Bank on Tuesday that seeks rationalisation of taxes, negotiated takeover of Old Independent Power Plants (IPPs) and closure of all old public sector plants to increase electricity tariffs, but slightly lower than that committed with lenders under the IMF programme.
This really indicates that government is serious and working towards addressing chronic issue of circular debt that has been haunting the country over last many years.
The present government has taken politically very difficult and unpopular steps including tariff increases, surrendering government rights to Nepra on tariff notifications, closure of old power plants and absorption of pension liabilities of the power plants.
However, in our view, further tariff increases in quick succession would negatively affect electricity demand.
Therefore, some breathing space is required as paying capacity of consumers has been lost.
The economy cannot afford further immediate tariff increase amid the third wave of Covid-19.
So while improving efficiency of energy producing units, focus must be to protect interests of the consumers.
One has no doubt about capabilities of new Energy Minister Hammad Azhar, as the way he delivered in past, we are confident that he will find a way forward with inputs from economic team to steer the energy sector from this quagmire of circular debt.
Indeed we are paying the cost of expensive contracts signed in the past. Due to bad deals, power producers are being paid whether electricity produced is used or not.
While revisiting these agreements, it is also important that government creates demand for electricity consumption.
Firstly, villages without electricity should be provided with the same and secondly industrialisation should be promoted for greater power consumption. We have surplus electricity today and option could be discussed to export it.
Then most importantly, a sustained campaign should be launched to check power pilferage and recover power sector receivables.
It is only through a holistic approach that issue of circular debt can be addressed on permanent basis.