The power sector’s circular debt escalated to Rs2.31 trillion by June 2023. Despite an increase in electricity prices, this significant rise is attributed to inefficiencies, theft, and losses encountered by power distribution companies. The Pakistan Democratic Movement (PDM) government, during the fiscal year 2022-23, did not improve the dire situation of the power sector.
The beginning of FY23 saw a circular debt stock of Rs2.253 trillion. However, by the end, this figure had risen to Rs2.31 trillion, as confirmed by energy ministry officials. Amidst the challenges, electricity prices underwent two hikes in the past year due to conditions set by global entities like the IMF and the World Bank. Despite these price increments, which surpassed Rs50 per unit, authorities and political leaders could not rectify power distribution company mishaps.
Financial Implications and International Perspective
Debts owed to power producers increased from Rs1.35 trillion in the previous year to Rs1.44 trillion by June 2023. A detailed breakdown revealed:
- Factors Contributing to Debt: 50% of the Rs789 billion increase in the circular debt was due to inefficiencies, power distribution company losses, and inadequate bill recoveries. Furthermore, delayed payments to power producers added Rs100 billion, and another Rs43 billion arose from bank interest payments.
- Government Measures: To combat the rising debt, the government introduced a debt servicing surcharge of Rs3.23 per unit, essentially passing on their inefficiency costs to the consumers. Even so, they couldn’t stem the debt’s growth. An additional Rs250 billion in circular debt arose due to recovery delays of generation costs.
- IMF’s Perspective: An IMF report highlighted the deteriorating situation of the energy sector, emphasizing that this issue has been festering for a decade. The causes include slow reforms, operational losses, increased generation costs, political hesitancy to adjust prices, and the frequent allocation of unaccounted subsidies. The IMF noted a particular decline in FY23, marked by unforeseen budgetary subsidies and heightened arrears accumulation, resulting in extensive power outages.
