ISLAMABAD: The power division on Friday reported that the circular debt at the end of June 2018 stood at Rs1.148 trillion, including Rs583 billion parked in a holding company and that all of it is being serviced through consumer tariffs.

Testifying before a special Senate committee presided over by PTI Senator Shibli Faraz, joint secretary (power) Zargham Ishaq Khan said loans of the power sector worth a total of Rs618bn had been transferred to the Power Holding Company Limited (PHCL).

However, since some loans had already been paid for or rolled over, the outstanding debt in the PHCL books now stood at Rs582.86bn. This also includes a mark-up of Rs153bn. On top of this, the debt outstanding against distribution companies (Discos) amounts to Rs566bn.

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Separately, an amount of Rs817.5bn was outstanding against various public and private sector consumers — in other words, receivables of Discos.

Senator Faraz appreciated the power and finance divisions for being forthcoming in providing the information and the data. He said that about Rs159bn taxes were being collected annually from electricity consumers and deplored that only Rs66 against a bill of Rs100 was being filtered out to the Central Power Purchasing Agency (CPPA) — owing to inefficiencies, theft and non-recoveries. Consequently, circular debt has been increasing rapidly.

Mr Khan said that the PHCL was established in 2009 as a special purpose vehicle (SPV) with an initial paid up capital of Rs15 million. The SPV was created to consolidate all loans taken by the power sector, which includes generation companies (Gencos), Discos, transmission company and Wapda, etc.

He said a consolidated Rs216bn liability had been built up between 2004 and 2009 and was initially parked in the PHCL, which was created with the approval of the prime minister at the time, under the Companies Ordinance Act. However, it was revealed after the first meeting that total mark-up on the consolidated, amount including the principal amount, the amount overdue, the total mark-up, and total payments due, stood at Rs307.995bn.

It was settled by the government by way of issuing treasury bills and Pakistan Investment Bonds. The amount was taken accounted for in the federal budget and made part of the enhanced fiscal deficit.

Mr Khan said that after the settlement of the 2013 circular debt, a total of 14 commercial loans currently remain in the books of the PHCL, including a unique Rs82bn loan acquired from OGDCL, which is much different from the banking sector and attracts a much lower mark-up than other commercial loans.

He said the power division tried repeatedly to book all these loans on Discos but the regulators resisted because these were not development loans, and could not be treated as part of consumer tariff. To get around that problem, the government had to impose surcharges on electricity consumption.

Senator Faraz believed the supply of electricity to non-paying areas had doubled circular debt, while Senator Musadik Malik of the Pakistan Muslim League-Nawaz was of the view that the underlying cause for the accumulation of circular debt, was the regulator’s refusal to transfer the cost of losses to the consumers in full. The difference between the actual loss and what is be passed on to the consumer adds to the debt, he explained and suggested that the regulatory mechanism be altered to remedy this problem.

Senator Faraz asked if the National Electric Power Regulatory Authority accepted the different amount of losses of various companies in the tariff, would that stop the rising circular debt and reduce consumer tariff? Mr Khan clarified that the rate would increase the indirect impact and that would increase the government’s liability towards the power sector. The subsidy levels would be enhanced, and that would impact the budget, he added.

While discussing the situation in Balochistan, Senator Mir Kabeer Ahmed Muhammad Shahi claimed that the only solution to the electricity problem in the province was to move towards solar energy. He said that a total cost outlay of Rs67bn was needed to solarize 32,000 tube wells across Balochistan. This, he asserted, would be a one-time investment after which electricity worth 577MW would be saved.

Seconding the views of Senator Shahi, Senator Malik stressed that adopting solar energy was the way to the future, and if Pakistan wanted to make any kind of competitive progress in the world, it must initiate this shift.

Published in Dawn, August 18th, 2018