ONCE again, the government has tripped up on the circular debt. In a written statement in response to a question asked in the National Assembly on Thursday, the water and power minister confirmed that the total amount under circular debt is at Rs258bn as of end February, whereas the receivables of the Discos are Rs552bn.

The reasons he gave for the return of the issue were familiar: problems in recoveries, failure to pass through markup costs on outstanding payables to consumers and delays in tariff determination and notification. Of these, the attempt to have consumers pay the markup on payables deserves to be resisted strenuously.

The least-convincing part of the minister’s answer was on the steps being taken to tackle the problem. We’re promised a concerted recovery effort, and the imposition of a Debt Recovery Surcharge “to ensure repayment of loans” taken out to pay Discos’ liabilities to private power producers.

Also read: Power sector circular debt exaggerated to make case for tariff increase

Additionally, we’re promised some amount of technical upgrades to reduce line losses. In other reports, there are signs that NAB is going to be made party to power sector recoveries once again, as it was a number of years ago, but with little idea on how the process will be made effective this time.

Last time, NAB was unable to recover any more than Rs5bn or so, out of the total recoverables more than 10 times that amount. The problem was not in the lack of capacity to force payment. The problem was in faulty billing, and rectifying that appears to be beyond the capacity of the power bureaucracy.

A Debt Recovery Surcharge is just another way of passing the cost of interest on outstanding payables to consumers, except that by calling it a surcharge the approval of the regulator is no longer required.

It can be implemented by executive order, like an SRO, instead. Upgrading the technical apparatus of transmission and distribution is a good measure, but it will prove highly unequal to the task of increasing the number of billed units and recoveries.

All of the steps mentioned by the minister, except for the surcharge, should be implemented, but it also needs to be acknowledged that the power bureaucracy will never be able to solve this problem.

For a lasting fix to the problem of power-sector mismanagement, which is in large measure the cause behind the circular debt, the role of the bureaucracy needs to be reduced dramatically.

Published in Dawn, March 28th, 2015

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