Persistent circular debt

Persistent circular debt

PEPCOAnother day, another committee. The latest one is going to be formed at the National assembly level — this time as an effort to make temporary solutions into sustainable ones tackling the countrywide power shortage.

This unanimous move in the National Assembly followed the government’s pledge to overhaul the power sector with the dissolution of the Pakistan Electric Power Company (PEPCO) within 15 to 20 days.The government seems to have finally taken the electricity crisis seriously, which had triggered nationwide protests, particularly in Punjab, as the country recently experienced the worst power outages in its history.
However, since the finance ministry released Rs 11 billion to the petroleum ministry, load shedding has considerably and palpably reduced across the country.At present, the installed capacity of power generating sources in the country is 21,000 MW while the production is only 11,000 MW. The demand for electricity is 18,000 MW, which is estimated to increase eight to ten percent every year. The current shortfall in power supply is therefore 7,000 MW.

It is true that power generation cannot be enhanced to 100 percent of the country’s actual generation capacity; however, the gap between demand and supply of the utility can be reduced effectively. A number of power producing units in the country had to be shut down due to fuel shortage, which was a result of the circular debt that had gradually increased manifold after the distribution companies around the country failed to pay back PEPCO for electricity consumed by them, and the fuel suppliers in turn were deprived of payments until credit limits were reached and even breached.

Although the government has injected Rs 11 billion into the system, the respite from the power cuts is temporary. According to the finance ministry, current estimates of circular debt persist between Rs 500 to Rs 650 billion and the exact amount needs to be determined. For a long-term solution of the power crisis, issues like theft, line losses, non-payment of dues by electricity consumers, both public and private, and lack of governance in the power distribution companies around the country have to be resolved. Hopefully, the replacement of PEPCO by another body will yield better results than the past record.

There is a need to enforce a system that ensures circulation of capital in the whole system. There are reports that a cut in subsidies by further increasing the power tariff is being suggested to generate revenue to settle the circular debt. The suggestion is indeed an absurdity in the present circumstances when the masses are already finding it hard to pay their electricity bills. Such a step would only increase power theft, as it would render more people unable to pay for the essential service.

The government should make arrangements to break down the cyclical debt, which the PEPCO accumulated over the years. Hundreds of factories have been closed down across the country as it faces an acute energy crisis. This has resulted in capital flight from the country as well as rendered thousands unemployed. For the economy’s progress, power security has to be ensured. The proposed committee should come up with practical solutions on how to settle the gigantic circular debt issue and avoid its reappearance.

The Asian Development Bank (ADB) has also put forward this condition while offering a loan to Pakistan for settling this issue. Before this crisis is through, the government should also pay attention to the nagging little question of corruption from at least this point onwards. Otherwise, the stop-start cycle will continue.