Power Sector Circular Debt

Hi everyone! I hope you are all doing well. Welcome back to another blog. This article will discuss the topic in detail “Power Sector Circular Debt”. The power sector in Pakistan continues to grapple with a mounting circular debt crisis, as recent figures reveal a substantial increase. During the first 10 months (July-April) of the fiscal year 2022-23 (FY23), the circular debt soared by a staggering Rs. 378 billion, reaching a staggering total of Rs. 2,631 billion. This represents a significant surge compared to the previous year, where the increase stood at Rs. 169 billion during the same period.

A closer look at the debt composition indicates that the payables owed to power producers witnessed a substantial rise of Rs. 244 billion during the 10MFY23 period, elevating the outstanding amount to Rs. 1,767 billion. In contrast, the corresponding figure last year stood at Rs. 1,523 billion. Similarly, Power Generation Companies (GENCOs) experienced a rise in payables to fuel suppliers, with an increase of Rs. 11 billion during July-April FY23 when compared to the previous fiscal year.

Moreover, the data reveals that the payable amount of Power Generation Companies (GENCOs) to fuel suppliers, which was Rs. 88 billion during 10MFY22, has surged to Rs. 99 billion in 10MFY23. However, there is a glimmer of positive news amidst this concerning trend. The amount allocated to Power Holding Limited (PHL) has witnessed a decrease of Rs. 73 billion during the first 10 months of FY23, dwindling from Rs. 838 billion last year to Rs. 765 billion in July-April FY23.

These figures highlight the urgent need for comprehensive measures to address the circular debt issue in the power sector, as its continued growth poses significant challenges to the stability and sustainability of the energy industry in Pakistan.

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According to the latest information provided in the document, it has been projected by the government that the circular debt, which currently stands at a substantial figure, will witness a significant reduction and reach a more manageable level of Rs. 2,374 billion. Furthermore, the authorities are determined to maintain the payment to power producers at the existing level of Rs. 1,509 billion until the conclusion of the fiscal year.

In a similar vein, the government expresses its expectation that the payables of the Generation Companies (GENCOs) to their fuel suppliers will remain steady at Rs. 100 billion. The documents further affirm that the significant amount parked in Power Holding Limited (PHL) will remain unchanged at Rs. 765 billion, as per the estimations provided.

The accumulation of circular debt in Pakistan has been a concerning issue, with significant additions totaling Rs. 378 billion since FY22. Amongst these additions, a substantial increase of Rs. 297 billion can be attributed to the inefficiency and losses incurred by power distribution companies, coupled with the under-recovery of bills.

In addition to the aforementioned factors, the government itself contributed to the mounting circular debt by adding Rs. 76 billion. This amount was allocated to cover interest charges on delayed payments owed to independent power producers (IPPs). It is evident that the mismanagement and delays in payments have further exacerbated the circular debt crisis.

During the period of July to April in FY23, the under-recovery of bills alone accounted for an alarming Rs. 204 billion increase in the circular debt. This highlights the pressing need for more effective strategies and mechanisms to ensure timely bill recovery and minimize losses within the power distribution sector.

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Furthermore, a significant outstanding amount of Rs. 501 billion remains unsettled as of April 2023, owed by K-Electric. This substantial sum is a result of an ongoing subsidy dispute between the power company and the Government of Pakistan. The resolution of this dispute is crucial for addressing the circular debt crisis and ensuring the financial stability of the power sector in the country.


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