Daily Times

The All Pakistan Business Forum (APBF) President Syed Maaz Mahmood has warned the government of worsening circular debt in the power sector, which would continue to haunt it along with the challenge of dealing with the volitile crude oil prices in the global market.

Syed Maaz Mahmood said that the power sector circular debt issue should be resolved holistically without escalating electricity cost, as its size has more than doubled during the three and a half years in spite of raising the power tariff multiple times in the past. At present, oil and gas sectors are reeling from Rs1.7 trillion worth of circular debt whereas the power sector has a circular debt close to Rs2.5 trillion. The rising gas demand forced the previous government to divert expensive LNG to the residential consumers in winter. However, there was no mechanism in place to recover dues from the domestic sector.

APBF Chairman Ibrahim Qureshi said that LNG has now become a major contributor to the circular debt, leading to deterioration in the financial health of Pakistan State Oil and Sui Northern Gas Pipelines Limited. PSO has to receive over Rs360 billion from SNGPL on account of LNG supplies whereas SNGPL has to recover around Rs120 billion from the domestic sector, industry players say. Ibrahim Qureshi said that the Petroleum Division was set to seek approval of the new government for the provision of Rs36 billion, out of a total of Rs53 billion, to SNGPL to cover the subsidy on LNG supplies to the export-oriented sectors. He said that apart from the circular debt woes, price differential claims of billions of rupees are emerging because of the freeze on oil price revision while in the international market crude oil has risen to multi-year highs. Already, the consumers in Pakistan are paying record high prices of petroleum products.

We have to resolve the circular debt issue by revamping the entire power sector, including tariff setting, efficiencies of power generating units, supply chain network and payment recoveries. If this is not done, the future of energy sector would remain at stake, he warned. The APBF President said that the power sector problem is a multifaceted problem and the government must avoid increasing the cost further, especially for the industry. Syed Maaz Mahmood said that the government claimed that it has been making efforts to improve efficiency but the power sector situation remains grim despite putting an additional burden of Rs145 billion on consumers in the past one year by increasing electricity prices. In fiscal year 2022-23, the government provided Rs144 billion less in subsidies as against the requirements based on reduced rate of tariffs for various categories of consumers.

The government has recently prepared a plan to reduce the circular debt but the new plan, drawn up in consultation with the International Monetary Fund, shows that the circular debt reduction will largely hinge up increasing the electricity prices. Syed Maaz Mahmood said that the issue of circular debt will continue to haunt the government’s resolve of reducing cost of doing business and promotion of industry. The continuous increase in the flow of the circular debt was against the promises of the govt to bring the circular debt to zero. It is going to make another plan to reduce the debt, mainly by increasing electricity tariffs which is not the proper way to handle the issue.