Circular debt a threat for government’s move of power tariff cut for SMEs

KARACHI: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has observed the growing circular debt in the power sector is a persistent challenge for the government’s recent move of cut in power tariff for small and medium enterprises (SMEs).

FPCCI President Mian Anjum Nisar, in a written statement, appreciated the Economic Coordination Committee (ECC) of the Cabinet to form a committee of all stakeholders to prepare a proposal on modalities for clearing the circular debt of around Rs1.6 trillion.

He said the issue of circular debt would continue to haunt the Prime Minister Imran Khan’s resolve of reducing cost of doing business, elimination of peak-hour charges from industrial power tariff and discount on consumption of additional units.

“The power sector circular debt issue may be considered holistically and a solution may be worked out to resolve the issue without escalating electricity cost, as its size has doubled during last two years in spite of that the government raised power tariff multiple times in the past on the plea of containing its rising trend,” he added. 

Past trend of increasing tariff to control circular debt has totally failed, he argued and called for taking drastic measures and adopting holistic approach in tackling the problems in the sector to address power consumers’ vulnerability.

Referring to the audit report of the Ministry of Energy, he said that circular debt size was Rs1,415 billion in 2018, which was jumped to Rs2,150 billion in June 2019-20 while it skyrocketed by another Rs116 billion in the first quarter of 2020-21 to astounding amount of around Rs2,266 billion.

He called for power sector reforms, considering the matter of overbilling, technical losses, transmission issues, proposal on decentralization of the sector, promotion of off grid solutions, incentives for renewable energy solutions and capacity payments to the independent power producers. He added that if the government failed to take immediate measures the power sector is likely to choke up due to heavy outstanding dues.

Mian Anjum Nisar said that the overall power sector reforms can be included closing down of inefficient IPPs, re-negotiations with the IPPs, bringing reforms in govt-owned power producing plants, improving efficiency and reducing costs of Wapda plants, besides converting the agriculture tube wells in Balochistan to solar in collaboration with the provincial government to reduce the cost. 

“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.

He said that the power sector problem is a multifaceted problem and the government must avoid increasing the cost further, especially for the industry. 

According to reports, as much as Rs243 billion was added to the circular debt in first half of FY 2020 while an increase of Rs294 billion was seen in second half of that fiscal year. In the same way, around Rs288 billion increased in first half of FY 2018-19 whereas, the second half of same financial year also witnessed a rise of Rs198 billion.

The FPCCI President warned of any move to levy circular debt tax or increase in power tariff to pay off this debt. He said that the business community has been calling for much needed reforms in the power sector to control pilferage, line losses and to stop corrupt practices. He said that the government had pledged to revamp the power sector and continued to raise electricity prices to eliminate subsidies but failed to implement reforms to make the power sector efficient. He said that the circular debt issue could have been resolved today, if the government had eliminated production, transmission and distribution losses; checked electricity theft and recovered the outstanding electricity dues.

He appreciated the recent decision of cut in power tariff for Small and medium-sized enterprises (SMEs); elimination of peak-hour charges from industrial electricity tariffs; 50% discount on consumption of additional units for B1, B2 B3 connections and 25% discount on additional consumptions for industrial connections for 3 years.

He said that it will boost productivity, lower costs, encourage manufacturing, enhance exports and generate employment. “We express confidence in government policies and assure to continue to work with it for the prosperity and economic development of the nation,” he added. 

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