Ironically, Pakistan does not have energy shortage but the resources to pay the cost of energy produced by independent power producers (IPP) circular debt is rising beyond the reach of the aspirants to pay through available resources. It is estimated that the said debt stood at record Rs922 billion by the end of November 2017. Last month a report was submitted in the parliament which said that the Ministry of Finance has put the amount of circular debt at Rs472.678bn as of November 30, 2017. However it was the only one side of the coin since it did not mention another Rs450bn debt was separately parked with Power Holding Private Limited (PHPL) which is a subsidiary of the power division and it has been created to raise funds from commercial banks and is financed through surcharges built into the consumer tariff.
In 2013, the present government started its tenure and gave a surprise to all by announcing the payment of circular debt at the beginning of its tenure. At that time the amount of circular debt was not less than Rs480 billion and the government had nothing in the treasury in the name of circular debt payment. However, the then Finance Minister of PMLN government managed the amount and paid the circular debt to the Independent Power Producers at the cost of some development funds. So far so good. Common sense which remained the most uncommon in power corridor demands that this practice should not have been revived at any cost. At present, the National Accountability Bureau (NAB) is engaged in investigation about the payment of the Rs480-billion circular debt payment in 2013. A probe which has been conducted by the Senate Standing Committee on Finance has already established over Rs62 billion worth of undue payments to the independent power producers (IPPs).
By breaking all previous records, the circular debt is touching the new heights once again owing to the bad governance and failure in recovery of billed electricity amount. It's a gift of the present government to the next one and will continue to hound the new government after elections 2018 due to the gravity of the implications. Alarmingly, this huge circular debt has also put a seal to the fate of all debt capping efforts to be devised by the present and previous governments. The government has formed a plan to squeeze the circular debt to Rs204 billion by the middle of 2018. However, it will remain a plan shelved in the dark corners of memory due to lack of interest from the concerned quarters.
There is no legal definition of circular debt. However we can define it by saying that it is technically non-payment by the power purchaser for generated electricity in the country. There may be several reasons for such non-payment such as inefficiency as well as corruption prevalent in distribution companies, technical losses, distribution losses and direct theft of the electricity. The management system does not allow losses beyond a certain percentage but the government burdened with political affiliations, does not forward the full cost of generated tariff and offers subsidies to certain groups to cover the gap. We need to know that a subsidy that is not performance based further adds inefficiency and supports to the circular debt problem.
The current circular debt has been started to pile up since 2007-08. Unfortunately, no policy or mechanism to deal with the matter has yet been forged despite the lapse of one decade even. Not to speak of previous government, the present government did not address this issue during its tenure. It focused the just payment of circular debt piled up during previous regime at the very outset of its tenure and did not put a cap upon the heaping up further. Consequently, it has inflated to the tune of Rs. 922 billion and has endangered the integrity of the energy sector. It is all due to ad-hocism being adopted by all concerned in energy sector. The lack of transparency is the major reason for the entire problem.