ISLAMABAD: The Power Division on Friday said it was targeting curtailing circular debt by about Rs425 billion during the current fiscal year (FY22) to Rs1.856 trillion chiefly through Rs230bn prior year recoveries from consumers through base tariff.

In a report on circular debt presented to the Cabinet Committee on Energy (CCoE), the Power Division said the circular debt accumulation during the current year was projected to be Rs400bn mainly because of weaknesses on the part of the power companies and the government. However, this would be brought down to Rs165bn by ensuring Rs230bn prior year recoveries through consumer tariff.

This is part of the latest circular debt management plan currently under process for approval by the CCoE as required under the IMF programme. A meeting of the committee presided over by Planning and Development Minister Asad Umar reviewed the latest situation on Friday.

In addition, the government would take care of the repayment of principle debt parked in Power Holding Limited (PHL) and stock payments of about Rs461bn. The report said circular debt would increase by Rs60bn because of interest charges on delayed payments to independent power producers (IPPs) and Rs32bn mark-up on PHL.

Another Rs100bn addition to circular debt would come due to pending generation costs like quarterly and monthly tariff adjustments, Rs77bn for loss inefficiencies of distribution companies and Rs130bn under recoveries of Discos. The Power Division said that about Rs292bn was recoverable from K-Electric as of June 2021 pending due to a dispute over subsidy.

The Power Division said it planned to ensure settlement of Rs461bn outstanding arrears to the IPPs during the current fiscal year. According to the report, the circular debt accumulation had dropped to just Rs13bn per month in August but went up again to Rs85bn in September and now peaked to Rs2.379tr.

The CCoE was informed that circular debt during July to September 2020-21 was Rs2.254tr which increased to Rs2.379tr during the same period in 2021-22.

The committee reviewed the September 2021 circular debt report and appreciated the reduced accumulation of debt during the first three months of FY2021-22.

The Petroleum Division also presented a report on development of strategic petroleum reserves. The meeting was informed that a working group comprising OGDCL, PSO, Pepco, Parco, TPPL and PRL was constituted to develop a concept paper and study the strategic reserve requirement in the country. The working group has completed its initial assessment and a detailed feasibility study is being planned based on the recommendations of the group.

The meeting was told that the maritime affairs ministry also prepared a proposal on this. The CCoE directed that a committee be constituted under the Oil and Gas Regulatory Authority with the Ministry of Maritime Affairs and Petroleum Division as its members for finalising the proposal and reviewing the detailed framework for the establishment of strategic petroleum reserves.

The committee also considered a summary presented by the Power Division about standard security agreements for small hydropower projects (up to 50MW) under the Power Generation Policy 2015. It was informed that the policy envisaged development of large as well as small hydel power projects. The CCoE agreed with the framework for the ongoing and committed power projects.

For small dams, the CCoE said it had approved a policy for creation of a market-based system so that risk and liability could not rest with the taxpayers. These guidelines include the Competitive Trading Bilateral Contracts Market and “Wheeling Policy” which have both been designed for this very purpose. The CCoE directed that this framework for small dams be in consistent with the overall policy direction.

The meeting was attended by the ministers for finance and energy, prime minister’s adviser on commerce and industries, PM’s special assistant on CPEC, representatives of regulatory authorities and senior officials of the ministries/divisions concerned.

Published in Dawn, October 30th, 2021