Power sector circular loans top Rs 2.64tr

An employee of Peshawar Electric Supply Company (PESCO) climbs a high-voltage pylon in Peshawar on August 7, 2017.  - Reuters
An employee of Peshawar Electric Supply Company (PESCO) climbs a high-voltage pylon in Peshawar on August 7, 2017. – Reuters
  • The increasing debt has become a matter of great concern for the government.
  • From July 2022 to May 2023, the debt increased by Rs 394 billion.
  • This increase comes despite an increase in tariff by Rs 7.9 per unit in July 2022.

Islamabad: The circular debt of the power sector has reached an astonishing amount of Rs 2.646 trillion by the end of May 2023, registering an increase of Rs 394 billion from July 2022 to May 2023, according to a report by the Ministry of Power.

The mounting debt has become a major concern for the government and power sector policy makers, as it points to monthly inefficiencies in the power system, especially generation and distribution, resulting in losses of 35.82 billion rupees ($132.2 million) every month. ) has an additional burden.

This comes despite the government’s implementation of a base tariff hike for electricity last July following pressure from the International Monetary Fund (IMF), which raised tariffs to reduce debt, rejecting the notion of bridging the gap in power holding companies. Remedies were demanded.

Despite a significant tariff hike of Rs 7.9 per unit in July 2022, circular debt continued to mount as the underlying structural issues in the sector remained unresolved, causing a substantial financial burden of billions of rupees every month on loyal power consumers. ,

The data shows that the cumulative loan quantum by the end of the financial year 2021-22 was Rs 2.253 trillion, rising to Rs 2.646 trillion by the end of May 2023.

Meanwhile, payments to power producers increased by Rs 420 billion to Rs 1.771 trillion during these 11 months. Payments of state-owned generating companies (Genco) to fuel suppliers increased from Rs 101 billion to Rs 110 billion during the same period.

However, a positive development was seen in the amount of debt placed in Power Holding Limited (PHL), which decreased by Rs 35 billion to Rs 765 billion at the end of June 2022 from the previous figure of Rs 800 billion recorded.

Inefficiencies of electricity distribution companies (DISCOs) have emerged as a significant burden on the financial health of the power sector, mainly due to their high losses and low bill realization.

These deficiencies in electricity transmission and distribution are hindering the sustainable provision of energy services, resulting in increased energy prices and increased business costs.

During the eleven-month period, electricity distribution companies (discos) faced non-recovery of bills as well as losses and inefficiencies, which contributed to Rs 374 billion in circular debt, of the total debt of Rs 394 billion was 95% of the total sum of Rs. inventory.

DISCO losses and inefficiencies during July-May 2022-23 increased to Rs 125 billion, while short bill collections added up to Rs 249 billion.

An analysis of circular debt additions shows that of the Rs 87 billion contributed towards payment of interest to power producers on delayed payments, the government currently owes these generators Rs 1.77 trillion.

In addition, interest payments to banks on Rs 765 billion held in a power holding company added Rs 58 billion to circular debt.

To address this issue, the government has imposed a debt service surcharge of Rs 3.23 per unit, passing on the cost of inefficiency to power consumers.

In addition, Rs 171 billion was added to circular debt due to delay in recovery of production cost through quarterly and monthly fuel duty adjustments. An additional Rs.57 billion was added to the debt stock due to non-payment by K-Electric.

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