THIS is the truth about circular debt: it can make policymakers go round and round in circles in search of a tool to break the chain. Just when government officials were congratulating each other on their ‘success’ in liquidating the unpaid bills of public and private power producers and their fuel suppliers accumulated over time, they find themselves standing against yet another mountain in the making. The power companies’ bills have spiked again to a staggering Rs216bn, or equal to 45pc of the previous bills of the Rs480bn cleared by the Nawaz Sharif government in its first month in power. That was billed as a great success and the government has since been trumpeting the clearance of that debt hoarded by its predecessor as a major policy feat. No one in officialdom is prepared to even acknowledge the debt’s resurgence, let alone move to settle it.

When the government announced its plan to pay off the outstanding dues of power companies in one go, it had claimed the move was part of a major reform programme to fix the country’s collapsing energy sector. Soon it transpired that it didn’t have a plan at all. The so-called energy policy came quite late in the day although the ruling PML-N had started working on it immediately after winning the May elections. Apart from a substantial increase in electricity prices for most consumers to ease pressure on the budget, the need for crucial reforms, aimed at reducing distribution losses, controlling electricity theft, revamping public generation and distribution companies etc seems to have been forgotten. There’s little movement on the plan to privatise Gencos and Discos. This is so, despite repeated warnings from experts and private power producers who were the main beneficiaries of the government’s decision to liquidate the circular debt. They have been pointing out that the clearance of unpaid bills alone won’t solve the country’s chronic power troubles.

Lack of implementation of energy sector reforms is not the only reason for the resurgence of the unpaid bills of power companies. The issue is also linked to the government’s cash flow problems. The government hasn’t been able to generate enough revenue to keep its budget deficit within the limits prescribed by the IMF under its $6.6bn loan arrangement, after paying the producers their bills. Unless the government works simultaneously on revamping the power sector and increasing its tax revenues, it will not be able to put the ever-agitated genie of circular debt back into the bottle.