Circular debt reaches Rs2.294trn in July-August

The country’s circular debt has reached Rs2.294 trillion during the first two months (July-August) 2021-22 as compared to Rs2.237 trillion in the same period 2020-21.

Of the total amount Rs1.265 trillion is related to power producers, Rs103 billion to Gencos’ payable to fuel suppliers and Rs926 billion is parked in Power Holding Limited (PHL).

Circular debt, a permanent source of concern for International Monetary Fund (IMF), World Bank and Asian Development Bank (ADB), has shown Rs13 billion growth in its flow in July-August 2021-22, as compared to Rs86 billion in corresponding months of 2020-21.

According to official documents, unpaid subsidies have been reduced by Rs11 billion during the first two months of current fiscal year against growth of Rs86 billion in the same period last year. However, the volume of unbudgeted subsidy posted a growth of Rs18 billion during this period from Rs8 billion in the same period last fiscal year.

The documents further show that IPPs’ interest charges on delayed payments remained at Rs14 billion, the same level as the comparable period last year. The government has already paid Rs89.6 billion to the IPPs of pre 1994 and 1994 policy and arrangements are being made to pay over Rs134 billion to the same IPPs before December 4, 2021. However, payments approved for the IPPs established under Power Policy 2002 have not yet been made despite the fact that the Cabinet has already approved the proposal.

An official told this scribe that Power Division has sent its summary to the Finance Ministry to pay 40 per cent of the agreed amount to IPPs of 2002 Policy.

Power Division has claimed that the pending generation cost (QTA+ FCA) is Rs36 billion in July-August 2021-22, which was Rs63 billion in the same period of 2020-21, showing a decrease of Rs27 billion. Nepra is about to allow a substantial increase in FCA for August 2021. The volume of non-payment by K-Electric (KE) stood at Rs21 billion during the first two months of current fiscal year against Rs15 billion during the same period last year, indicating an increase of Rs6 billion in non-payment.

The amount of Discos’ inefficiency was recorded at Rs44 billion in just two months of current fiscal year against Rs25 billion in the same period last year, showing an increase of 19 billion, or over 130 per cent.

According to the Power Division, Discos under recoveries have also posted a growth of 51 per cent – Rs68 billion in the first two months of 2021-22 from Rs45 billion in the same period of 2020-21; however prior year recovery has declined to Rs172 billion July-August 2021, from Rs119 billion in the first two months of 2020-21.

The unbudgeted subsidy including AJK and KE is around Rs93 billion (AJK Rs46 and KE Rs29 billion). An amount of Rs297 billion is receivable from KE as on June 2021 due to subsidy dispute between KE and government of Pakistan (GoP).

The PHL and IPPs stock also reflect projected adjustment/ payment through federal budget: (i) repayment of Rs130 billion PHL debt; and (ii) the settlement of outstanding arrears of Rs135 billion to IPPs in FY 22.

Circular debt flow projections are based on CDMP which is under process of approval of cabinet committee on energy (CCoE). Any changes in the plan would be reflected in next month’s circular debt flow projections.