According to a report, the circular debt of power sector stands at Rs648bn, up by Rs33bn in merely three months. In a quarterly report submitted to the International Monetary Fund, the minister said that “the payables in the power sector stand at Rs313bn at end-June 2015”. In the previous report, he told the Fund these payables were Rs280bn by end-March 2015.This may not be a stellar increase by standards of the recent past, but the fact that it comes after high-profile efforts to cap the circular debt, to audit its details, to address it through ramped-up recovery efforts and tariff hikes, it is a quite a disappointing turnout. The circular debt is being fed by a number of factors, the report notes: the stock of past amounts, disputed amounts with the IPPs, non-recovery by distribution companies as well as penalties by the regulator for failure to meet performance targets, arrears on subsidy payments, debt service obligations and court stay orders on surcharges. Ishaq Dar claimed that government was now addressing both the flow and stock of payable arrears in the power sector, including by allocating budgetary resources, levying surcharges, gradual improvement in company performances and recoveries and initiating the process of privatising power sector companies. The finance minister said the government had now adopted a plan for reducing the accumulation of arrears and to gradually eliminate the stock. This plan includes steps to improve collections and reduce operating costs, losses and price distortions in the tariff structure. With this, the accumulation of payables will be reduced from Rs209bn last year to under Rs100bn this year to halve new arrears accumulation by 2018-19. He reported to the IMF that the government will continue with efforts to reduce losses and improve collections through capital expenditures and revenue-based load management. “Overall losses in fiscal year 2014-15 remained at 18.7pc. Collections declined on average by 1pc to 88.1pc, primarily due to two Discos.”The minister informed the Fund that taking advantage of the room created by falling oil prices, late payment surcharges and higher system losses were incorporated into the 2014-15 determined tariffs, which was expected to arrest a portion of the build-up of the circular debt and improve cash flow of the system.He promised to move Rs335bn stock of the PHCL debt into Discos’ balance sheets where privatisation will take place. This will help to reduce the stock of the PHCL debt and will ease the servicing of this debt.Dar said the government had signed performance contracts with the board of directors of nine Discos to tackle losses, raise payment compliance and improve energy efficiency and service delivery. Their performance was now being monitored on a monthly basis specified in the contracts. He said the government was now working with the ministry of law on creating an effective system for handling cases related to electricity theft that could be effective by end-2015 to try theft cases.
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