Settling the Circular Debt – a Sisyphean Task?


It appears we acclimatize ourselves to crushing crises without even feeling the need to wind them up. In this day and age, where nations are progress-ing and achieving revolutionary breakthroughs in every field, alas! we are struggling with the same mare’s nest.

Being entangled into grave economic crisis is not something new for Pakistan, but circular debt in energy supply chain has become nuisance for more than a decade. It is piling up due to cross-indebtedness of the parties in the energy supply chain owing to inability of Distribution Companies (DISCOs) to fetch full cost of electricity predomi-nantly on account of line losses, power theft, and delayed tariff adjustments and subsidy payments.

Since the genesis of this mammoth nuisance back in 2007, circular debt account is managed as a running account facility tallied on recurring basis but is this really a Sisyphean task to settle this account for-ever? Considering the ever surging volume of debt to its all-time high PKR 2.9 trillion, there is little evidence left to deny the above. An elixir on the cards is tabled by the Finance Minister necessitating the announcement of dividends by State Owned Enterprises (SOEs) in the energy supply chain and counting the same towards settling of dues.

According to him, this would have doppelganger effect, it would not only help in clearing debt but would also appreciate the stock prices of currently undervalued energy companies thus facilitating prospective equity financing through the issue of Global Depository Receipts (GDRs), a tool similar to share certificates for generating funding in for-eign stock exchanges.

Bearing in mind the involvement of other stake-holders, legal barriers and lethargic planning ma-chinery, this solution sounds far-fetched when con-fronted with the acid test; is it a once for all solution or are we clutching at straws?! Obviously, this makeshift move would help government in shedding the partial burden of debt through release of subsidy payments to DISCOs, however line losses and power theft would still be contributing dearly to the score.

Do the regulators have any panacea for other ills in the supply chain? Evidently, it is least anticipated from administrators. A holistic approach is inevita-ble in stamping out this jeopardy; before all else, a capital injection bailout to the entities in the energy supply chain is direly needed to revamp the dys-functional financial system.

The bailout package would help DISCOs to install state of the art distribution network restraining power losses and theft. Arranging the capital needed to finance this bailout is a tough row to hoe for the administrators; a public-private partnership model implemented with the international private partners bringing efficiency and funding to the project while the government monitoring compliance with the desired objectives seems a practicable modus oper-andi at this stage.

Other attempts to salvage this ailing situation re-quire bringing goal-oriented efficient teams to the boards of DISCOs and other SOEs in the energy supply chain with a defined timeline for the imple-mentation of integrated energy reforms.

Isn’t it less than law of the jungle that compliant consumers bear the burden of recalcitrant debtors by paying for electricity subsidies! accordingly, elimi-nation of differential tariff subsidy between cost of electricity charged to consumers and the cost paid by government for each unit of electricity, and en-trusting DISCOs with absolute responsibility to recover full cost electricity in their relevant jurisdic-tions would serve a dual purpose, firstly it would lessen the burden on compliant consumers and the same amount can be used for development purposes in the second place.

To balance the electricity supplies with demand in narrowing blackout periods in Pakistan, government entered into long term Power Purchase Agreements producers at excessively appeal-ing terms requiring huge outflows on account of high-priced fuel, interest cost and capacity payments without considering the possibility of vanished de-mand, which was witnessed when the pandemic caught us by surprise followed by faded economy activity and reduced power demand.

This means that government pays for the electricity which never enters into national grid, a renegotia-tion of generation contracts with power producers is a matter of cardinal significance and energy division needs to treat it with kid gloves without dampening foreign investors’ sentiments to future investments. Another hiccup on the road to redemption from this menace is the overreliance on the power production involving nonrenewable energy resources; isn’t it less than a curse, being equipped with such a well-suited topography, we are not harnessing the true potential of hydropower and wind power. As of 2020, installed wind power and hydropower capac-ity of Pakistan stood at 1,236 MW and 10,002 MW respectively while our immediate neighbor, China, topped both the lists with wind power capacity of 281,993 MW and hydropower capacity of 370,160 MW. China being a party to our bilateral infrastruc-ture development projects can save our bacon through extending the ambit of collaboration in the field power generation. For how long, we would evade our responsibility before putting an all-out-effort to break this vicious cycle of debt. It’s time to learn lessons, instead of getting into the blame game. Pakistan’s energy sector is perforated with pits and bumps causing distress to the overburdened consumers in the form of high-priced electricity bills and the supply of uninterrupted affordable energy has become a pipe dream.

The writer is a professional under apprenticeship in a private organization in Islamabad & is accessible at: [email protected]


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