The caretaker government, confronted with the growing circular debt crisis in the power and gas sectors, contemplates two strategies to alleviate the situation. The potential debt in the power sector has surged to an alarming Rs2.3 trillion, prompting a review of the government’s direct involvement. Even more concerning, the gas sector’s debt has overshadowed this, amounting to Rs2.8 trillion. These debts amount to an overwhelming Rs5.1 trillion, equivalent to over $17 billion.
Potential Solutions on the Horizon
Energy Minister Muhammad Ali unveiled the government’s consideration of transferring four power generation plants and 10 state-run distribution companies (Discos) under long-term concession agreements. Such a move would hand over managerial responsibilities to private entities for up to 25 years, facilitating further investments and infrastructural advancements.
The options include handing power companies to provincial governments, full privatisation, or delegating management via a long-term contract. Ali noted discussions with the World Bank’s International Finance Corporation (IFC) concerning these long-term concession agreements.
Further, once privatisation or a management shift to the private sector is executed, uniform tariffs may no longer be mandatory, allowing companies to set individual tariff structures based on efficiency. The energy minister also highlighted short-term strategies to decrease circular debt, including interventions to reduce costs, boost local power generation, and enhance the North-South transmission line.