ISLAMABAD: The government on Monday approved a plan under which the base electricity tariff across the country will further increase by a cumulative Rs5.36 per unit (more than 34 per cent) in at least three phases over the next two years.

The Circular Debt Management Plan (CDMP) was approved during a meeting of the Cabinet Committee on Energy (CCoE) presided over by Planning and Development Minister Asad Umar. It was attended by Energy Minister Omar Ayub Khan, Finance Minister Dr Abdul Hafeez Shaikh, prime minister’s special assistants Tabish Gohar, Nadeem Babar and Dr Waqar Masood Khan and senior officials of the ministries and divisions concerned.

An official statement said the committee “approved the summary presented by the Power Division to ensure effective management of circular debt”. It added that the meeting “discussed the summary of comprehensive CDMP-2021 which covers the three-year period from FY2020-21 to FY2022-23 and describes the mechanisms and initiatives to address the issue and suggests an action plan to control the flow of circular debt with a monitoring matrix”.

CCoE approves summary to ensure effective management of circular debt

The summary of the CDMP seen by Dawn showed that average uniform rate would gradually go up to Rs21.04 per unit (excluding taxes, duties, surcharges and other add-ons in the bill) that currently stands at about Rs15.68 per unit. This would be achieved through an increase of Rs1.39 per unit in tariff rebasing in June to curtail flow to the existing circular debt by Rs13 billion within this year, followed by Rs126bn next fiscal year and Rs136bn the year after, with a cumulative impact of Rs276bn in two years.

This will be followed by another Rs2.21 per unit increase in rates through another tariff rebasing in July 2021, involving revenue impact of Rs199bn next year and Rs215bn in FY2023. The cumulative impact of this rebasing in July 2021 has been worked out at Rs414bn.

Yet another Rs1.76 per unit increase will be made through tariff rebasing in July 2022 to generate additional Rs176bn. The CDMP, which also has the blessing of international lending institutions, binds the energy ministry and power regulator Nepra to issue notifications for three rebasing tariff in June this year, July 2021 and July 2022.

This is despite the fact that the Power Division has conceded that “more than 70pc of circular debt was due to pending policy decisions”. It also conceded that cost of electricity had reached a point where the consumers have started switching to alternative solutions.

The collection of bills from government customers will also be rationalised and subsidies will be on an actual basis and paid according to schedule.

The Power Division has committed recovery improvements, including that of Quetta Electric Supply Company of about 5.73pc, to yield a total of Rs204bn in two years. It has also promised to reduce system losses by 2.12pc over the next two years for saving another Rs130bn.

The plan under the summary approved by the CCoE also binds the ministries of finance and energy to ensure net budgeted subsidy for payment to consumers at Rs329bn each in FY2022 and FY2023 to create another Rs189bn saving each year in circular debt. This will make sure that total subsidy, including on account of Azad Kashmir, PHPL (Power Holding (Pvt) Ltd) market and IPP’s (independent power producers) interest, stands at Rs473bn and Rs479bn in FY22 and FY23, respectively.

The summary showed that the government would be saving about Rs4bn build-up to circular debt during the current fiscal year, followed by Rs28bn in FY2022 and Rs35bn in FY2023 through revised power purchase settlements as payables of the Central Power Purchasing Agency (CPPA) to IPPs will reduce by Rs162bn next year and Rs443bn in FY23.

The summary confirmed that Rs538bn was added to circular debt in FY2020, increasing the debt to Rs2.15 trillion by end-June 2020 from Rs1.612tr in June 2019. This was Rs270bn on account of higher generation cost, Rs135bn lower subsidy payments, Rs55bn mark-up to IPPs, Rs70bn mark-up to PHPL, Rs77bn non-payment to K-Electric, Rs104bn due to Covid-19 and Rs137bn because of distribution companies’ inefficiency.

The Power Division said that in the base case situation circular debt would increase by Rs436bn during the current fiscal year, further up by Rs878bn in FY22 and Rs1.251tr in FY23, taking the total flow of circular debt to Rs2.585tr by the end of FY23.

The successful implementation of all tariff, non-tariff and administrative adjustments listed above would limit the circular debt flow at Rs351bn (instead of Rs436bn in base case) and it would actually start falling by Rs281bn in FY22 and Rs155bn in FY23.

The circular debt stock (parked in PHPL) on the other hand is targeted to reduce from Rs930bn at the end of this year to Rs800bn in FY22 and further to Rs636bn in FY23. Likewise, the CPPA stock estimated at Rs1.37tr this year would come down to Rs642bn next year and to Rs487bn in FY23.

Distribution companies’ payables to IPPs would on the other hand also reduce from Rs1.265tr at present to Rs542bn next year and further to Rs387bn in FY23. Generation companies’ payables to fuel suppliers would remain unchanged at about Rs100bn at the end of the current fiscal year through FY23.

Published in Dawn, March 16th, 2021