ENERGY SECTOR IN THE RED
Oct 18 - 24, 2010
Circular debt is one of the most serious threats posing to the country's energy sector, as financial team of PPP-led government has failed to resolve the circular debt issue that continues to debilitate the energy sector of Pakistan.
As per letter of intent, co-signed by the Finance Minister of Pakistan and the Governor of the State Bank of Pakistan, approved by the International Monetary Fund (IMF) staff prior to the release of the fourth tranche, the circular debt is required to be eliminated by the end of March this year. However, in the wake of deteriorating economic situation of the country, the problem is worsening with every passing day, as no pragmatic steps have so far been taken to resolve the issue that is undoubtedly worsening the power crises.
The Finance Ministry, in its presentation to the World Bank at the start of this fiscal year, conceded that another Rs225 billion was added to the circular debt by the end of June. It was also projected that by the end of current fiscal year, further Rs256 billion would be added in the circular debt at an average of Rs21.33 billion per month.
Senate Standing Committee on Petroleum and Natural Resources had serious concerns at the rising trend of circular debt amounting to over Rs235 billion of the ministry and forcing oil refineries to produce as low as at 60 per cent of their capacity.
According to Chairman of the committee, Sabir Ali Baloch, the government has to put in place a plan to resolve the issue of circular debt, enabling the entities of the petroleum sector to perform at full capacity and cater to the needs of the national requirements. Senator Safdar Abbasi suggested a joint meeting of ministry of water and power, ministry of petroleum and natural resources and ministry of finance be convened to thrash out a quick solution to the circular debt. Senator Pervaiz Rashid proposed a joint meeting of the senate and national assembly to discuss solutions.
Sources in Pakistan State Oil (PSO) said the company's receivables soared to Rs144 billion including Rs130 from the power sector while payables swelled to Rs122 billion including Rs89 billion to refineries and Rs33 billion to international oil suppliers. The circular debt was seriously affecting the PSO, cautioning the chain of supply would collapse if the vicious circle of the circular debt were allowed to move on.
According to sources, different government organisations owe Rs24 billion to Pakistan Petroleum Limited (PPL). The country is under burden of Rs235 billion circular debts reasoning the power shortfall across the country. Different government entities including Sui Northern Gas Pipeline, Sui Southern Gas Pipeline, and Wapda are yet to pay Rs24 billion to PPL.
On the other hand, Sui Northern Gas Pipeline is yet to receive seven to eight billion rupees from Wapda and Rs11 billion from different gas producing companies.
According to experts, power crisis cannot be addressed in the country unless the government takes measures to address the circular debt, which increased by Rs42.66 billion in July-August period and another Rs16.35 billion added during the first 23 days of September.
Nothing would change if the government retained management control of public entities. There is an urgent need to appoint independent boards in these power distribution companies with chief executives from private sector, experts opined.
According to them, circular debt is likely to reach to Rs781 billion by June 2011, as it has already touched Rs584 billion, which includes Rs300 billion parked by the government in holding company.
They were of the view that disbanding of Pepco would not resolve the issue of low revenues and high energy cost. The government would not be able to offload shares of the low performing power sector entities. The need of the hour is to take immediate steps to streamline power related measures through neat and clean policies.
According to Federal Minister for Water and Power, Raja Pervez Ashraf rental power plants (RPPs) were the instant solution to end prevailing electricity crisis in the country.
He said Musharraf regime had initiated the RPPs project in 2006 and the present government continued it because it was a fast alternate resource for power generation. He ruled out any element of corruption in the awarding of RPPs projects, citing all the projects were awarded in transparent manner after issuing their tenders internationally.
Raja Pervez said that government inherited the power crisis from Musharraf regime, and all possible steps were being put in order to bridge the demand and supply gap of electricity in the country.