ISLAMABAD, Nov 21: Pakistan’s inter-corporate circular debt has crossed over Rs180 billion and hike in the prices of three major utilities in a quick succession has become inevitable owing to the failure of former prime minister Shaukat Aziz-led economic team to resolve the problem, it is learnt.

“This is the re-emergence of inter-corporate debt that we used to have in the early 1990s. The situation is even worse today although we have a team of economists at the helm of affairs over the last eight years,” said a senior government official who is dealing with the chronic problem.

The situation is such that Pakistan’s energy sector crisis could worsen in the short run in the kind of disruption in oil supplies and much higher scale of loadshedding over the next few weeks. In the longer run, Pakistan’s budget deficit may go beyond five per cent of GDP during the current year against a budgetary target of four per cent. Before the 1999 military takeover, the inter-corporate debt had touched Rs100 billion but had melted before 2002.

The official said the former prime minister kept on delaying oil price adjustment to an extent that the government has to absorb more than Rs17 per litre on kerosene and about Rs15 per litre on diesel despite repeated warnings by the ministry of petroleum and natural resources.

Likewise, the government did not pass on the entire increase in electricity rates allowed by the National Electric Power Regulatory Authority (Nepra). Interestingly, the government collected over Rs150 billion on oil and gas last year in the form of different taxes, development levies, and royalties.

The sources said the ministry of finance was currently engaged in hectic efforts to put together a consortium of banks to arrange financing to ease off cash constraints of Pakistan State Oil (PSO), Shell and a few other oil companies to ensure smooth fuel supplies.

The government had made an allocation of Rs87 billion in the budget 2007-08 as subsidies for the energy sector which means that the caretaker government will need to raise more than Rs90 billion through price and tariff hike or pass on the legacy of even higher circular debt to a new elected government next year.

The sources said that major debt emanates primarily from the non-payment of public sector electricity bills to Wapda whose receivables have gone beyond Rs70 billion, including Rs60 billion coming out of Fata arrears.

The situation has worsened owing to a freeze on oil pricing that developed Rs41 billion of payables by the government to the oil marketing companies and refineries on account of petroleum differential claims although the government continued to collect general sales tax on all products and development levy on some of the oil products.

These sources said the major objective of freezing oil and withholding of full impact of electricity tariff rise to the consumers was to contain inflation. This objective remained unfulfilled as food prices remained out of control most of the last 25 months but on the other hand started to dent fiscal targets in the recent months.

The situation has reached to a stage that the caretaker government will have to increase oil prices by at least 15 per cent by end of this month, followed by a more than 20 per cent hike in electricity rates sometimes next month and about 6.56 per cent rise in natural gas rates by end of next month for which Oil and Gas Regulatory Authority (Ogra) has already given an approval.

Caretaker minister for finance Dr Salman Shah and special secretary finance Dr Ashfaq Hassan Khan did not respond to comment on the crisis despite repeated telephonic contacts while secretary finance Ahmad Waqar was reported to be out of town.

Informed sources said non-payment of public sector electricity bills has caused a cash shortfall of about Rs55 billion to Wapda’s corporate companies. Resultantly, its payables to independent power producers (IPPs) have surpassed Rs30 billion. It owes another Rs13 billion to Pakistan State Oil and other fuel suppliers and around Rs8 billion or so to equipment suppliers.

As a chain effect, PSO is facing difficulties in making payments to oil refineries and other suppliers and has informed Wapda and the federal government that it would be constrained to stop fuel supplies.

Likewise, since the government has not been able to liquidate petroleum differential claims (PDCs), estimated to cross Rs41 billion, the oil marketing companies have also informed the government about their inability to make payments to the oil refineries due in the last week of the current month. This is despite the fact that oil marketing companies have reported 20 per cent higher fuel consumption during the current month.