ISLAMABAD, Sept 4: The government is expected to make ‘at source deduction’ of unpaid electricity bills from the accounts of defaulting provincial governments and federal and provincial agencies to partially resolve the issue of circular debt of Rs400 billion in the energy sector.

Although this might create cash flow problems for some provinces, ministries and autonomous organisations but the move would enable the power companies in the public sector to make substantial payments to independent power producers and gas and oil companies to resolve their financing difficulties, sources told Dawn on Thursday.

The government is also considering to provide sovereign guarantees to banks to help the power utilities with bridge financing. It is expected to pick up the cost of interest on these loans and facilitate negotiations because most of the companies have exceeded their credit limits and in some cases are defaulting on repayment.

Along with these measures, the government is also considering to pass on maximum increase in power rates to consumers in one go after the presidential election on Sept 6 and then ensure that the impact of fuel price change in the international market is passed on to consumers on a monthly basis.

The government has made an amendment to the National Electric Power Regulatory Authority (Nepra) law through the finance bill to revise power tariff every month on the basis of inflation and fuel price variation, replacing the existing system of biannual revision.

The options were discussed at a meeting presided over by Minister for Water and Power Raja Pervez Ashraf and attended by senior officials of Wapda, Pakistan Electric Power Company, IPPs, fuel supply companies and public sector power firms. “The meeting discussed issues of circular debt in detail and considered various options to resolve it,” an official statement said.

The entire energy sector is in the grip of a financial crisis because of non-payment of dues.

Pepco and its distribution companies have to recover more than Rs155 billion from public sector consumers and Karachi Electric Supply Company.

The Federally Administered Tribal Areas have arrears of about Rs75 billion, followed by KESC’s Rs60 billion, the provinces’ Rs11 billion, some defence organisations’ Rs8 billion and the federal government’s Rs1.5 billion.

As a result of the non-payment, the oil and gas companies and IPPs have amounts of over Rs120 billion payable by the power utilities.

Following threats by the IPPs and fuel suppliers to call government guarantees and shut down their plants because of the non-payment, Pepco and its companies have paid over Rs30 billion over the past 15 days. Pepco recovered an average of Rs1 billion per day from consumers and the entire flow had gone to the IPPs and fuel suppliers, an official said.

He said the difference between power generation cost and sale price had widened recently to Rs2 per unit (kWh) because of maximum generation coming from oil-based thermal power production as gas supplies declined to 15-20 per cent of the usual quantity. Pepco sells about 76 billion units per year.

On federal government’s request to avoid loadshedding during Sehr and Iftar, power generation has been increased to about 13,700MW but some distribution companies like those in Hyderabad, Peshawar and Quetta are suffering chronic system losses of almost 33 percent.

The meeting also reviewed progress on the implementation of fast-track thermal power projects to eliminate loadshedding by the end of 2009.

The minister asked the participants to ensure that the projects were implemented on a priority basis and installation of 1,500MW of additional generation capacity was completed within 18 months.