Home Global Village The deadly loop of circular debt haunts power sector under PMLN’s watch

The deadly loop of circular debt haunts power sector under PMLN’s watch


News Analysis |

The former government of PML(N) has failed to recover the dues of Rs 860 billion from the defaulters of power companies.

The government had to recover a hefty amount of Rs 730 billion in 2017 on account of electricity bills, which have soared by Rs 130 billion in the current calendar year. An effective debt recovery system remains absent from the ministries agenda.

The experts say that if the recovery will not be made timely, the unrecoverable amount may escalate to Rs 1000 billion, which would enhance the circular debt.

The tax hikes are shown as fuel adjustment and Sales Tax on the power bills. The members of the Association demanded that Government look into the matter and reduce all extra taxation.

The federal government owes Rs 9.24 billion, whereas Azad Jammu and Kashmir government has to pay over Rs 100 billion. The provincial governments are in debt of Rs 120 billion. In addition to this the power companies have to recover Rs 250 billion for tube wells from the Baluchistan government.

Read more: Understanding Pakistan’s $210bn debt situation with former Finance Minister Dr Salman…

Pakistani’s Having to Pay more for Electricity

Due to nonpayment of these dues, the end consumers have had to pay higher bills every month during the tenure of PML(N). In June a Senate special committee on circular debt, chaired by Shibli Faraz, pointed out that the cost of electricity generation was Rs8.52 per unit from March to July 2018, whereas, consumers paid Rs11.9 per unit.

The issue of discriminating against poor consumers and under developed areas is prevalent in the power sector. Committee Convener Shibli Faraz stated that, electricity supply to poor people, who were regular in bill payment, was disconnected in case of missing a single payment. However, the influential people, who were longstanding defaulters, were provided electricity without interruption. The same construct extends to load shedding, areas are discriminated against depending on the number of VIP residents in the area.

The former government of PML(N) has failed to recover the dues of Rs 860 billion from the defaulters of power companies. The government had to recover a hefty amount of Rs 730 billion in 2017 on account of electricity bills, which have soared by Rs 130 billion in the current calendar year.

Raising Electricity Taxes for the Industry

Effects of the power sector have hit the industry and commerce hard as well. Chairman of Pakistan Flour Mill Association pointed out that there had been an increase in power tariff by PESCO (Peshawar Electricity Supply Company), raising the per unit cost of flour by Rs.30 per 20 Kg bag. Prices of flour are forcing the poor to take it of their shopping lists. It is an unfair transfer of burden. The tax hikes are shown as fuel adjustment and Sales Tax on the power bills. The members of the Association demanded that Government look into the matter and reduce all extra taxation.

Read more: Former govt borrowed $44 billion but failed to stabilize economy

The problem of Circular debt is not new in Pakistan, in 2008, the petroleum industry had faced its wrath and prices have never been the same. Similarly, the power sector debt will gravely effect the common Pakistani’s wallet, raising costs of goods, dampening market activity in different industrial sectors.

Though the last government made tall claims to produce extra electricity, they have failed to streamline the distribution system and keep up with circular debt.

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