Circular debt?

The worse menace of power circular debt still haunts the economy. Back in 2012, the country was not producing from a few power plants to manage the losses in the power sector. The inter-disco tariff subsidy peaked in FY12 at Rs457 billion (2.3% of GDP). That was despite the fact that half of the demand was shed by system, while at least potential a quarter was not used to be produced.

What is circular debt? It is defined as the money lost in the system and is usually referred to the power payable bills of government entities, mainly NTDC, to the other players in the power chain, especially IPPs and PSO. Power sellers (DISCOs) pay to power purchaser (NTDC) and it pays to power producers (IPPs & GENCOs) and they in turn pay to fuel suppliers (PSO, OGDC etc) and they pay back a bit of it to government in the form of petroleum levy and other taxes.

Oops; isn’t it too circular? What is debt in it? Since DISCOs and NTDC have their share of losses; the payable ought to rise. Higher the losses in kilowatts of electricity; higher the circular debt. Higher the fuel prices, higher the losses in rupees.

The circular debt used to be too high. Dar right after assuming finance ministry cleared the circular debt to the tune of Rs480 billion with part of it in form of cash injection and rest was in shape of bond. And he cleverly accounted it in the outgoing government budget.

But that’s history; today thanks to low oil prices, circular debt has not reached anywhere close to what it was five years ago. In FY16, inter-disco tariff subsidy was Rs146 billion (0.5% of GDP). And payables by government to other power players are somewhere in the vicinity of Rs300 billion; it was Rs200 billion after clearing debt in 2013. The current level is due to the arbitrary cap fixed by government as it tries to keep payable close to Rs300 billion mark.

Unfortunately, circular debt in kilowatts is not a public number; it’s hard to quantify how much of improvement is due to low prices and what is the contribution of higher efficiencies by Discos and NTDC. Ministry of power claims that total AT&C losses are reduced to 23.4 percent in 2015 from 28.2 percent a year earlier - recoveries improved to 93.4 percent from 88.7 percent (2013) in and T&D losses at 18 percent from 18.6 percent in 2013.

Thus the payables are low. However, the receivables of government power sector crossed Rs650 billion lately. And there are news circulating about it as circular debt. This is an incorrect way to refer to the circular debt. However, government has to open up its accounts and make the recent history of losses in Kilowatts public for a fair comparison.