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Pakistan’s power sector circular debt reached a staggering Rs 2.6 trillion

ISLAMABAD: As of October 31, 2023, Pakistan’s power sector circular debt reached a staggering Rs 2.6 trillion. This represents a monthly increase of 13 percent, equivalent to Rs 75.25 billion. Despite efforts to combat theft and improve debt recovery, the results have not met expectations.

ISLAMABAD: Pakistan’s power sector circular debt has risen to Rs 2.611 trillion as of October 31, 2023, marking a 13 percent monthly growth of Rs 75.25 billion. Unfortunately, efforts to combat theft and improve debt recovery have not yielded the expected results.

The circular debt stock had stood at Rs 2.310 trillion at the end of the fiscal year 2022-23 but has now surged by Rs 301 billion during the first four months of the fiscal year 2023-24, compared to a growth of Rs 249 billion in the same period of the previous fiscal year.

Payables owed to power producers have climbed to Rs 1.750 trillion during the first four months of the current fiscal year, up from Rs 1.434 trillion at the end of the fiscal year 2022-23, showing an increase of Rs 316 billion. This includes Rs 1.750 trillion in payables to Independent Power Producers (IPPs).

However, payables owed by Generation Companies (Gencos) to fuel suppliers have decreased to Rs 96 billion from Rs 111 billion in the previous fiscal year. Still, there was a Rs 5 billion increase during the first four months of the current fiscal year compared to the same period of the previous fiscal year. There was no change in the Rs 765 billion held in Power Holding Limited (PHL), which was also the same as the previous fiscal year.

Several factors contribute to the substantial growth in the circular debt flow, including issues related to K-Electric (KE), AJ&K, subsidy disbursements, delays in implementing QTA adjustments, higher interest payments, and fluctuations in the rupee-dollar exchange rate.

A significant portion of the circular debt, around Rs 389 billion, is receivable from KE as of October 2023 due to a subsidy dispute between the power utility company and the federal government.

Budgeted but unreleased subsidies amounted to Rs 8 billion during the first four months of the current fiscal year, a decrease from Rs 54 billion in the same period of the previous fiscal year.

Interest charges by IPPs on delayed payments to PHL and IPPs reached Rs 45 billion in the first four months of the current fiscal year, down from Rs 54 billion in the same period of the previous fiscal year.

The pending generation cost (QTAs + FCAs) stood at Rs 110 billion, an increase from Rs 103 billion during the same period of the previous fiscal year and Rs 250 billion in the entire fiscal year 2022-23.

Non-payment by K-Electric amounted to Rs 43 billion during July-October 2023-24, compared to Rs 65 billion in the same period of the previous fiscal year.

Distribution companies (Discos) reported losses and inefficiencies of Rs 77 billion during July-October 2023-24, compared to Rs 65 billion in the same period of the previous fiscal year, adding Rs 16 billion to the total circular debt stock.

Discos’ under-recoveries reached Rs 165 billion during the first four months of 2023-24, up from Rs 61 billion during the corresponding period of the previous fiscal year. However, their cumulative under-recoveries reached Rs 236 billion as of June 30, 2023. Other adjustments (prior year recovery, etc.) amounted to Rs 147 billion during July-October 2023-24, down from Rs 254 billion in the same period of the previous fiscal year.

Officials argue that the main reason for the increase in circular debt is the slow submission of claims for FCA and QTA to the Finance Ministry, and they believe that the current fiscal year will end with zero growth in the circular debt flow.