The energy crisis in Pakistan is a vicious circle that is defined by an innocuous sounding term, circular debt.
The last time this phrase reared its dreaded head, the new prime minister who was trying to move beyond his pronouncements while he served the ministry of water and power, forced the petroleum ministry to provide between 28,000 and 32,000 tons of furnace oil daily to the sector which helped generate more electricity.
However, this game of shortages, followed by public protests, followed by the executive’s personal attention, followed by the injection of money to improve power generation may appease the people but not the government sectors.
Both the finance ministry and the state owned oil marketing company, PSO, follow the government directions unwillingly.
The PSO has to add to its debt to buy the oil to provide it and the finance ministry is even unhappier because it has to cough up the money to reduce this debt.
In fact, the politics between the opposition and the government over this issue camouflages the fact that the finance ministry and the minister of water and power do not see eye to eye on the issue. The former does not approve of the latter’s strategy of dealing with electricity shortages and the subsequent public anger by pouring in money that the government does not have.
After the prime minister held his first cabinet meeting on the issue in the last week of June, the finance ministry released another tranche of Rs3 billion. This may seem like a lot till one realises that the water and power people had asked for Rs6 billion.
The spokesman of the finance ministry, Rana Asad Amin, told Dawn that in all Rs151 billion has been paid to the ministry of water and power, to reduce the circular debt in the fiscal year 2011-12.
But so complicated is the circular debt that almost everybody has a different figure for what the total amount is.
The ministry of water and power maintains that the total debt is around Rs382 billion. On the other hand, the finance ministry has calculated it to be Rs412 billion -now the ministry has shifted Rs312 billion of this amount to the national debt and only left Rs100 billion under the circular debt head.
It is estimated that around Rs1 billion is being given as subsidy to the electricity sector, every day. And Finance resents this.
“We can even give them Rs300 billion and clear all the dues – but we will be back to square one after three months,” said a senior official of the finance ministry, adding, that “This amount adds to what the government is borrowing from the central bank and the commercial banking system.”
He has a point.
However, to lower the circular debt further, the ministry of finance and the petroleum ministry have devised a plan to launch Rs82 billion term finance certificates (TFC) by OGDCL.
“This will clear the debt on paper starting from the oil and gas exploration company (OGDCL) which sells oil to refineries which then sells to PSO which then sells furnace oil to the generation sector,” said an official of the water and power ministry. However, the government will continue to pile up debt for buying the oil.
This is why TFCs, which are expected to be launched this month, will only ease the situation briefly. Eventually the debt will pile up again.
The figures presented by PSO to the ministries of water and power and petroleum shows that the company owes Rs205.36 billion to the power sector.
It includes money others have not paid it – Rs54.75 billion from Wapda; Rs105.19 billion from Hub power company (Hubco); Rs30.5 billion from Kot Addu Power company (Kapco); and Rs6.50 billion from KESC.
At the other end, the PSO has to pay around Rs88.86 billion to the oil refineries and Rs91.01 billion to Kuwait Petroleum for procuring various petroleum products.
While the officials of the water and power ministry want more money to clear the debt that the power generation companies owe to the PSO, however, the finance ministry finds this logic faulty.
The finance ministry maintains that each time the government pumps in billions to clear this up, the bills pile up again and the sum total of the debt reaches above Rs300 billion within no time.
Till the government shows the political will to go in and clear the Aegean stables of the debt for good, the circular debt will continue to soar.