ISLAMABAD: Finance Minister Ishaq Dar has confirmed that the circular debt of the power sector went up by Rs33 billion, or 11.78 per cent, from three months to June this year.

In a quarterly report submitted to the International Monetary Fund, the minister said that “the payables in the power sector stand at Rs313bn at end-June 2015”. In the previous report, he told the Fund these payables were Rs280bn by end-March 2015.

The Rs33bn increase in arrears has taken place after clearance of about Rs480bn soon after the PML-N government came to power in the May 2013 elections.

As such, the finance minister put the total arrears (circular debt) at Rs648bn at end- June 2015 (against Rs615bn at end-March 2015) including the stock of past amounts parked with the Power Holding Company Limited (PHCL) through syndicated term credit finance facility at Rs335bn. This stock of Rs335bn remained static.

Dar said the government had developed a monitoring mechanism to track the stock and flow of payables at all levels of the energy sector, including the PHCL.

He explained what formed the stock of circular debt. In addition to Rs313bn payables, the circular debt also included a residual from payables clearance of June and July 2013, a disputed amount with the IPPs, distribution companies’ non-recovery and penalties levied on past non-payment and transmission and distribution losses that are not recognised by the regulator.

Also the debt that emerged from the court stay order on surcharges, unpaid amounts of verified subsidy claims of distribution companies (Discos) under various heads, PHCL loan-servicing and payables to cross-border trade.

The minister said the government was reducing electricity subsidies to 0.3pc (around Rs90bn) of GDP in this financial year and allocating an additional 0.1pc for arrears clearance, with the recent tariff notification.

He said the government was now addressing both the flow and stock of payable arrears in the power sector, including by allocating budgetary resources, levying surcharges, gradual improvement in company performances and recoveries and initiating the process of privatising power sector companies.

The finance minister said the government had now adopted a plan for reducing the accumulation of arrears and to gradually eliminate the stock. This plan includes steps to improve collections and reduce operating costs, losses and price distortions in the tariff structure. With this, the accumulation of payables will be reduced from Rs209bn last year to under Rs100bn this year to halve new arrears accumulation by 2018-19.

He reported to the IMF that the government will continue with efforts to reduce losses and improve collections through capital expenditures and revenue-based load management. “Overall losses in fiscal year 2014-15 remained at 18.7pc. Collections declined on average by 1pc to 88.1pc, primarily due to two Discos.”

The minister informed the Fund that taking advantage of the room created by falling oil prices, late payment surcharges and higher system losses were incorporated into the 2014-15 determined tariffs, which was expected to arrest a portion of the build-up of the circular debt and improve cash flow of the system.

He promised to move Rs335bn stock of the PHCL debt into Discos’ balance sheets where privatisation will take place. This will help to reduce the stock of the PHCL debt and will ease the servicing of this debt.

Dar said the government had signed performance contracts with the board of directors of nine Discos to tackle losses, raise payment compliance and improve energy efficiency and service delivery. Their performance was now being monitored on a monthly basis specified in the contracts. He said the government was now working with the ministry of law on creating an effective system for handling cases related to electricity theft that could be effective by end-2015 to try theft cases.

Published in Dawn, October 13th , 2015

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