Circular debt payables surge to Rs2.63tr

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ISLAMABAD: Pakistan’s energy sector is grappling with an escalating circular debt crisis as total payables swelled to Rs2.63 trillion by the end of April this year, surpassing initial projection of Rs2.37 trillion for fiscal year 2022-23, sources in the power ministry revealed.

The surge in circular debt poses a grave threat to Pakistan’s financial stability and hampers smooth functioning of the energy industry.

The swelling inter-corporate debt can be attributed to various factors including unreleased subsidies and interest charges on delayed payments.

A budgeted subsidy of Rs108 billion for May-June 2023 remains untouched, exacerbating the circular debt challenges. Additionally, unbudgeted or unclaimed subsidies amounting to Rs30 billion for the same period have further strained the energy chain.

Independent power producers (IPPs) have also been affected by the circular debt crisis. Interest charges on delayed payments to IPPs for fiscal year 2022-23 alone sum up to Rs106 billion with projected addition of Rs30 billion during May and June.

However, Rs31 billion has been paid out of IPPs’ claims for FY23 to cover the mark-up cost of Power Holding Limited (PHL), with projected reduction of Rs25 billion in May and June.

The circular debt crisis has been compounded by the pending generation costs, non-payment by K-Electric, losses and inefficiencies of power distribution companies (DISCOs) and less-than-required recoveries.

The outstanding generation costs, including the quarterly tariff adjustment and fuel cost adjustment, amount to Rs108 billion for FY23, with addition of Rs14 billion in May and June.

Delay in payments by K-Electric adds to the mounting circular debt, with a staggering Rs58 billion outstanding for FY23.

DISCOs have incurred losses of Rs173 billion in FY23 including Rs80 billion in May and June due to their inefficiency while under-recoveries stand at Rs209 billion for FY23 including Rs5 billion for May and June.

Efforts to mitigate the circular debt crisis include allocating Rs35 billion for PHL’s principal debt repayment and stock payment of Rs180 billion for FY23. These measures are aimed at reducing the outstanding debt and easing the burden on energy sector.

As the circular debt continues to grow, urgent measures are needed to resolve subsidy disputes, ensure timely payments to power producers, and enhance the efficiency of DISCOs, energy-sector players say.

Only through effective measures and comprehensive reforms can Pakistan curtail the escalating circular debt, stabilise the energy sector, and pave the way for sustainable economic development, they emphasise.

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