The Cabinet Committee on Energy (CCoE) approved The Circular Debt Management Plan (CDMP). According to the plan, the base electricity tariff across the country will further increase by a cumulative Rs5.36/unit. This increase of 34 percent will take place in at least three phases over the next two years.
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According to the official statement issued by the committee, it, “approved the summary presented by the Power Division to ensure effective management of circular debt”.
CDMP covers the current and the next two fiscal years, and it describes the mechanisms and initiatives to address the issue of circular debt and suggests an action plan to control the flow of circular debt with a monitoring matrix.
Currently, the average uniform rate(excluding taxes, duties, surcharges, and other add-ons in the bill) currently stands at 15.68 per unit and will increase in three phases to become 21.04 per unit.
This would be achieved through an increase of Rs1.39 per unit in tariff rebasing in June to curtail flow to the existing circular debt by Rs13 billion within this year, followed by Rs126bn next fiscal year and Rs136bn the year after, with a cumulative impact of Rs276bn in two years.
This will be followed by another Rs2.21 per unit increase in rates through another tariff rebasing in July 2021, involving a revenue impact of Rs199bn next year and Rs215bn in FY2023. The cumulative impact of this rebasing in July 2021 has been worked out at Rs414bn.
Yet another Rs1.76 per unit increase will be made through tariff rebasing in July 2022 to generate an additional Rs176bn. The CDMP, which also has the blessing of IMF and other international lenders, binds the energy ministry and power regulator NEPRA to issue notifications for three rebasing tariffs in June this year, July 2021, and July 2022.
The plan is being implemented despite the acceptance by the Power Division that the circular debt is caused by the pending policy decisions. The division has also pointed out that high cost has led to consumers searching for alternative solutions for power.
The Power Division has committed to improving recovery, including about 5.73pc by Quetta Electric Supply Company, which will yield a total of Rs204bn in two years. It has also promised to reduce system losses by 2.12pc over the next two years for saving another Rs130bn.
The CDMP also binds the two relevant ministries, finance and energy, to ensure net budgeted subsidy for payment to consumers at Rs329bn each in FY2022 and FY2023 to create another Rs189bn saving each year in circular debt. This will make sure that total subsidy, including on account of Azad Kashmir, PHPL (Power Holding (Pvt) Ltd) market, and IPP’s agreed (independent power producers) interest, stands at Rs473bn and Rs479bn in FY22 and FY23, respectively.
According to the summary by CCoE, the government would be saving around Rs. 4 billion in circular debt build-up during the current fiscal year, followed by 28 billion in the next one and Rs. 35 billion in the fiscal year 2023. Through renewed power purchase settlements, the payables of the Central Power Purchasing Agency (CPPA) to IPPs will reduce by Rs. 162 billion next year and Rs. 443 billion in FY2023.
Concerning the past, the statement confirmed that in FY2020, Rs538bn was added to circular debt. The total circular debt increased from 1.612 trillion PKR in June 2019 to 2.15 trillion PKR in July 2020.
This can be attributed to Rs270bn on account of higher generation cost, Rs135bn lower subsidy payments, Rs55bn mark-up to IPPs, Rs70bn mark-up to PHPL, Rs77bn non-payment to K-Electric, Rs104bn due to Covid-19, and Rs137bn because of distribution companies’ inefficiency.
The Power Division said that it is expected under the current plan that circular debt would increase by Rs436bn during the current fiscal year, further up by Rs878bn in FY22 and Rs1.251tr in FY23, taking the total flow of circular debt to Rs2.585tr by the end of FY23.
However, in the best-case scenario, the circular dept flow would be limited at Rs351bn (instead of Rs436bn in the base case) and it would start falling by Rs281bn in FY22 and Rs155bn in FY23.
The circular debt stock (parked in PHPL) on the other hand is targeted to reduce from Rs930bn at the end of this year to Rs800bn in FY22 and further to Rs636bn in FY23.
Likewise, the Central Power Purchasing Agency (CPPA) stock estimated at Rs1.37tr this year would come down to Rs642bn next year and to Rs487bn in FY23.
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Distribution companies’ outstanding payments to IPPs would also reduce from Rs1.265tr at present to Rs542bn next year and further to Rs387bn in FY23. Generation companies’ payables to fuel suppliers would remain unchanged at about Rs100bn at the end of the current fiscal year through FY23.