Electricity has always remained a key issue of concern for the people of Pakistan. From power generation to power supply, governments have always faced criticism due to ever-rising load shedding, power supply issues and price of the electricity. The problem of circular debt has emerged in the recent decade. Circular debt can be defined as the frequent and interlinked financial problems in the nation’s power sector. It mainly involves the growth of unpaid bills and liabilities among different entities within the energy supply chain, including power generation companies, distribution companies, and the government.
The circular debt cycle normally starts with the government’s failure to completely subsidize the cost of electricity production. This leads to an under-recovery of costs by distribution companies (LESCO, FESCO etc.). These distribution companies then face issues to disburse the amount to power generation companies for the electricity they purchase, causing a delay in payments. This affects the ability of power generation companies to pay for fuel and maintenance, creating a chain reaction of unpaid bills throughout the energy sector.
The energy mix in Pakistan has also changed a lot in the last decade or so. To cater for the problem of load shedding the government of Pakistan (previous regimes) has made several agreements with IPPs (Independent Power Producers) so that the production of electricity can be increased at a faster pace. This solution does resolve the problem of load shedding but in return, the issue of circular debt emerged, because these power plants have been using imported fuel and the government was not very comfortable passing out the total cost of this type of power generation to the domestic consumers due to the fear of political and social unrest. Another problem that has emerged due to these IPPs is the capacity payments. These capacity payments in simple language can be termed as rent of these powerhouses, which has to be paid regardless of the units purchased by the power distribution companies. To add more fuel to the fire, these capacity payments as per the agreements have to be done in dollars. This has made the situation further worse as Pakistan is already facing the problem of low foreign exchange. According to a recent estimate, this payment for the current year is around 2 trillion rupees.
The government of Pakistan must subsidize the process of solarization.
Another problem is the provision of subsidised electricity units for a certain group of individuals. These people are using electricity free of cost under the government’s provision. This group includes public servants of power sector companies, and high-rank officers from the judiciary, military and public sectors. This is also one of the basic issues, that needs to be addressed, as it is also accumulating the government’s payments. On the other hand, the electricity bills have also become a prime source for the finance ministry to collect the tax revenue. This is also affecting the electricity prices as due to this the overall electricity bill is increasing with every passing day. In these circumstances, it is difficult for the government of Pakistan to decrease the prices of electricity. Rather it looks like there is no short-term solution to the problem of electricity prices in Pakistan. The inflationary pressure is also creating problems for the people.
There is no permanent short-term solution to this problem. The haphazard approach to resolving the power generation crisis has created a number of issues for Pakistan. In this regard the short-term solutions are limited. Firstly the government of Pakistan must restructure the capacity payment cycle, For this it must ask the Chinese government for the debt restructuring of these foreign power generation houses so that the foreign exchange payment pressure can be decreased. Secondly and more importantly the provisions to free/subsidize electricity units for the power sector company employees and other public sector employees (civil servants, judiciary and military) must be stopped. A nation with a low level of resources cannot afford this kind of luxurious treatment to their public servants. Lastly, steps must be taken to give control of these power distribution companies to the provinces so that the theft of electricity in one province should not become an issue for the people using electricity in other provinces. The phenomenon of cross-subsidy should also be addressed as normal people should not be paying for the poor people because social justice is the responsibility of the state not of the individuals.
In the long run, it is the need of the hour to work on renewable electricity resources. The government of Pakistan must subsidize the process of solarization by giving subsidies to solar plate manufacturers and importers. It is the ultimate solution to this problem because Pakistan is one of those nations of the world, which have been blessed with a high level of sunlight for around nine to ten months a year. The government must work on the issue of transmission losses. In this regard, a high gradual investment in the transmission structure is required. Lastly and more importantly, the power generation and distribution companies must be privatized and the role of government should only be of a regulator. This is the modern-day practice, where the government is working more efficiently as a regulator than a market player. But for all these measures, a strong governance structure with strong political backing is needed. These kinds of policy reforms cannot be done under a caretaker’s setup. Let’s hope against the odds that the ruling elite will understand the intensity of the problem and go for relief measures so that the future generation will not face this problem.
The writer is a faculty member at GCU, Lahore.