The State Bank of Pakistan (SBP) recently issued its Financial Stability Review (FSR) for the calendar year 2021. According to the report, Pakistan’s energy sector continued to remain the largest defaulter in the repayment of loans to banks in the calendar year 2021, as banks’ non-performing loans (NPLs) increased by 3.8% (or Rs31 billion) during the year.
According to details, energy prices declined during the pandemic when half of the world was shut down. As a result, the profit margins of energy firms, including oil and gas exploration and marketing companies reduced.
“Sector-wise analysis indicates that the rise in overall NPLs (the loans which corporate and individuals fail to repay on time) and flow was mainly driven by the energy sector, which observed an increase in NPLs of Rs20 billion during the reviewed year,” the State Bank of Pakistan (SBP) said in its latest Financial Stability Review 2021.
Moreover, it was earlier reported in the media that the energy sector’s circular debt reached Rs2.358 trillion during the first seven months (July-Jan) of FY 2021-22 compared to Rs 2.331 trillion in the corresponding period of 2020-21 due to a reduction in amount parked at Power Holding Limited (PHL) and Gencos payables to fuel suppliers.
Energy sector needs an overhaul?
However, the FSR report also noted that the recent increase in energy prices during the current calendar 2022 is expected to improve profit margins during the year.
Earlier, the Economic Coordination Committee (ECC) approved another increase of Rs7.91 per unit in the electricity prices. The implementation of the Rs7.91 per unit increase will be done in three phases. The first phase of Rs3.50 per unit will take effect from July, the second, also of Rs3.50 per unit, from August, and the third of nearly Rs1 per unit from the following month, according to the decision.
— Dr. Khaqan Hassan Najeeb (@KhaqanNajeeb) June 19, 2022
On the other hand, experts believe that Pakistan’s energy sector needs a serious overhaul and immediately shift to solar and wind power at the household level so as to save the foreign reserves of the country which were now depleting to an alarming level.
Read more: Country faces electricity shortfall?