Inside Financial Markets

Circular debt re-emerges despite Rs260bn payment

circular debtCircular debt re-emerges despite Rs260bn payment

LAHORE: The unpaid bills of private power companies — commonly known as circular debt — have again started to pile up in spite of the payment by the government of Rs260 billion to clear their outstanding bills up to end March this year.

Although the exact size of the unpaid bills of private power producers — usually referred to as IPPs (independent power producers) — for the post-March period is not yet compiled, the sources in the power companies told Dawn on Friday that the amount could already have touched the Rs40-45bn-mark. This is despite that the government is making partial payments to the companies.

“My company is producing electricity seven days a week. But we are being paid for only four days of production,” said a senior executive of an IPP on the condition of anonymity.

He said the “issue was complex and the one-time payment of the previous bills was not sufficient to keep the so-called power sector circular debt from rising in future. The government needs to take tough decisions without wasting more time.”

He listed the government’s failure to increase electricity prices to bridge the gap between the cost of generation and sale, prevent power theft and transmission and distribution losses as major factors for the “re-emergence of the power sector debt”.

“The government must follow up on its earlier announcements of reforming the power sector if it does not want the debt to pile up to its previous level.”

The Nawaz Sharif government had pushed fiscal deficit for the last financial year from 7.5pc to 8.8pc of the size of the economy in order to create space of Rs322bn for the payment of the unpaid bills of both state-owned and private power companies and the Pakistan State Oil.

Besides paying the private power producers, the government had also partially cleared the bills of public sector companies and PSO to the tune of Rs62bn.

In order to make the payments before the close of the last financial year on June 30, the government had ordered banks to keep their branches open on the last Saturday of the month despite weekly holiday.

The payments to the private producers were made after they signed a memorandum of understanding with the government. Among other conditions agreed to by the IPPs in the MoU, they had also promised to add 1,700-1,800 megawatts (MW) of electricity to the national grid before the start of Ramazan.

However, all the IPPs have so far added just 194 MW to the system. The total electricity produced by the IPPs stood at 6,117 MW on Friday morning against 5,923 MW they supplied on June 28 when the payments were made to them. This is despite the fact that one producer, Liberty, which was closed on the day payments were disbursed, is now producing 196 MW.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

Add comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.

The Canadian Securities Institute


CSI is part of Moody's Analytics Learning Solutions, which offers educational programs and credentials throughout the world.

Email Newsletter

Subscribe to receive inspiration, news, and ideas in your inbox.

Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)