Pakistan’s power sector is bleeding due to host of issues. There are several taxes, higher electricity rates and losses that have resulted in swelling circular debt issue.
Every government in Pakistan has tried to address issue of circular debt. But there has been no remedy so far.
Energy Ministry of Pakistan asks the Prime Minister Imran Khan to reduce excessive levies in the power sector, which have driven up electricity prices and increased consumer burdens.
Power theft became common as a result of the high electricity bills because the tariff was expensive for users.
Furthermore, the bleeding electricity distribution firms of Sindh, Balochistan, and Khyber-Pakhtunkhwa (K-P) contributed significantly to the spiraling circular debt.
There has been another alarming issue of capacity payments that have also resulted in higher electricity rates. The present government of Pakistan Tehreek-e-Insaf (PTI) has tried to tighten nose around the Independent Power producers (IPPs).
Newztodays.com has reported that government has paid Rs 89.2 billion to IPPs under an agreement.IPPs had agreed to reduce return under a deal and government was to make payment of IPPs dues amounting to Rs 403 billion.
Out of total, government has paid Rs 89.2 billion. However, it has withheld payment of IPPs installed under power policy 2002 due to investigation by National Accountability Bureau (NAB).However, anti-corruption watch dog has allowed to clear due.
Now, the federal government says that it is the obligation of provincial governments to take action against those responsible for the losses.
They claimed that if provinces are unable to limit these losses through local government, they should provide subsidies to consumers.
There were a number of additional causes, such as high taxes and capacity payments that were contributing to the circular debt. As a result, the Power Division recognized that it could not address these difficulties alone, and it urged all stakeholders to play their respective roles in addressing these issues. It notified the cabinet that a number of variables, including taxes and capacity payments, have resulted in an increase in electricity rates.
The Power Division informed to cabinet members that an excess payment of General Sales Tax (GST) in the amount of Rs85 billion had been made to the Federal Board of Revenue (FBR). It went on to say that the GST paid by independent power producers (IPPs) was Rs117 billion, while the GST paid by consumers was Rs202 billion.
There are 11 stranded furnace oil based IPPs with a total capacity of 3,300MW and an annual dispatch factor of 5% on average. Each unit of fuel costs Rs13.Now, government wants to close these power plants.
The Power Division suggested an early termination and buyout of these oil-based IPPs at a reduced value of Rs150 to Rs200 billion using PIBs sukuk. It will result in a Rs0.6 per unit reduction in future consumer tariffs, as well as the removal of unneeded oil-based IPP capacity.
Origin of circular debt
In the current fiscal year 2020-21, electricity theft in Pakistan’s power sector continues to wreak havoc on the whole energy chain, resulting to the biggest energy crisis in the country’s history.
The increased rate of electricity theft is the primary cause of the spiraling circular debt, which reached Rs2.3 trillion in January of this year. This has touched Rs 2.5 trillion mark by the end of June.