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Energy sector payables continue to swell

Despite successive increases in power tariff and efforts made by the present government to overcome the menace of inter-corporate circular debt, the latter is rising. The situation has spun out of government control. The remedy, according to a top energy manager in the country, lies in making the power sector efficient and vibrant.

Speaking on the condition of anonymity, he said “the energy sector’s current payables have swelled to Rs425 billion whereas receivables are just Rs385 billion.” The solution is two-fold: a further increase in electricity tariff to bridge the gap between cost of generation and actual billing and turning distribution companies into efficient entities.

The inbuilt flaws in power systems and inefficiencies on the part of power distribution companies have been termed a major reason for the present energy fiasco, he said. With regard to the tariff differential, he said that the cost of each power unit stands at approximately Rs11.90, whereas it is being sold at around Rs8.85 per unit to consumers. The shortfall will have to be borne by the government, which is not in a comfortable position to pay this amount regularly, causing further accumulation of payables.

Based on the present gap between the cost and price of each power unit, the government is burdened with Rs360 billion annually on account of a tariff differential subsidy on electricity. So every month the government is bound to pay Rs30 billion, which is not being done regularly, further worsening an already complex situation. The Ministry of Finance is a major culprit. It has made efforts to pay the subsidy in various installments. However, estimates suggest the amount still hovers around Rs100 billion.

Circular debt refers to the unpaid bills of power sectors to key players, especially oil and gas companies, independent power producers (IPPs) and the Water and Power Development Authority (WAPDA). The main hurdle in the supply of electricity has been accumulation of massive circular debt. Besides other bottlenecks, unrealistic end-consumer tariff is a reason for not recovering the rising cost of power generation.

The net gap between receivables and payables is presently calculated at Rs40 billion. There is a tendency of not recovering receivables, an official said. The management of most DISCOs has failed to recover the billed amount from various categories of consumers, along with curtailing distribution losses and power theft incidents. A big reason for this failure is their ineptness and bad governance, a senior official said, adding that most of these senior managers have not been succeeded in devising a system for the timely recovery of the outstanding amount. There are millions of defaulters in the power sector, which is simply not comprehensible, he observed.

If a consumer has not paid the bill by a certain date, his or her connection must be disconnected. But this has not been done by most DISCOs, leading to a rise in receivables. He stressed the need to overhaul the structure of the whole distribution system with a view to appointing able and competent managers, terming it a key issue for the resolution of circular debt.

He warned that the circular debt issue is not only causing underutilisation of generation capacity in the form of lack of fuel, it is the biggest hurdle in new investment in the power sector.

There is dire need to resolve the issue of inter-corporate circular debt in order to end the troubles of the energy sector, he maintained.

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