Business

Power sector circular debt tops Rs2.64tr

Published

1 year ago

Farwa

Mounting debt becomes major concern for government.
Debt increases Rs394bn from July 2022 to May 2023.
It rises despite tariff hike of Rs7.9 per unit in July 2022.

ISLAMABAD: The power sector circular debt has reached a staggering amount of Rs2.646 trillion by the end of May 2023, registering an increase of Rs394 billion from July 2022 to May 2023, according to a report by the Ministry of Energy.

The mounting debt has become a major concern for the government and power sector policymakers, as it indicates monthly inefficiencies in the energy system, particularly in generation and distribution, resulting in an additional burden of Rs35.82 billion ($132.2 million) each month.

This comes despite the government’s implementation of a base tariff increase for electricity last July, following pressure from the International Monetary Fund (IMF), which demanded tariff measures to reduce the debt, rejecting the notion of bridging the gaps in power holding companies.

Despite a significant tariff hike of Rs7.9 per unit in July 2022, the circular debt continued to rise, as underlying structural issues in the sector remained unaddressed, leading to a substantial financial burden on loyal power consumers, amounting to billions of rupees every month.

The data reveals that the cumulative debt volume stood at Rs2.253 trillion by the end of the fiscal year 2021-22, which ballooned to Rs2.646 trillion by the end of May 2023.

Meanwhile, payables to power producers surged by Rs420 billion to Rs1.771 trillion during these 11 months. The state-owned generation companies (GENCOs) also saw their payables to fuel suppliers rise from Rs101 billion to Rs110 billion during the same period.

However, a positive development was observed in the amount of debt parked in Power Holding Limited (PHL), which decreased by Rs35 billion to Rs765 billion from the previous figure of Rs800 billion recorded at the end of June 2022.

The inefficiencies of power distribution companies (DISCOs) have emerged as a significant burden on the financial health of the power sector, primarily due to their high losses and low bill recoveries.

These shortcomings in power transmission and distribution are impeding the sustainable provision of energy services, resulting in elevated energy prices and amplified business costs.

During the eleven-month period, the power distribution companies (DISCOs) incurred losses and inefficiencies, along with non-recoveries of bills, contributing Rs374 billion to the circular debt, accounting for 95% of the total addition of Rs394 billion to the overall debt stock.

DISCOs’ losses and inefficiencies amounted to Rs125 billion, while low bill recoveries added Rs249 billion during July-May 2022-23.

The breakdown of circular debt additions further shows that Rs87 billion was attributed to the payment of interest to power producers on delayed payments, with the government currently owing Rs1.77 trillion to these generators.

Additionally, Rs58 billion was added to the circular debt due to interest payments to banks on the Rs765 billion parked in a power holding company.

To address this issue, the government has imposed a debt servicing surcharge of Rs3.23 per unit, passing on the cost of inefficiency to power consumers.

Furthermore, Rs171 billion was included in the circular debt due to delays in the recovery of generation costs through quarterly and monthly fuel charges adjustments. An additional Rs57 billion was added to the debt stock due to non-payment by K-Electric.

Business

Gold prices in Pakistan approach an all-time high.

Published

21 hours ago

Farwa

Following a substantial surge the prior day, gold prices in Pakistan are ascending to unprecedented levels with an additional gain on Thursday, coinciding with a rise in global precious metal rates.

The price of 24-karat gold in the local market rose by Rs700 per tola, reaching Rs277,900, as reported by the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA).

Likewise, the cost of 10 grams of 24-karat gold increased by Rs600, currently priced at Rs238,254.

Globally, gold prices exhibited an upward trend, increasing by $7 throughout the day. The APGJSA reports that the international gold price was $2,682 per ounce.

Notwithstanding the increase in gold prices, the silver market exhibited stability, with the price of silver maintained at Rs3,050 per tola.

In the previous month, gold prices in Pakistan reached an unprecedented high of Rs 277,000 a tola, driven by substantial gains in the worldwide market.

Business

World Bank: Power industry subsidies soar by 400% in just five years.

Published

22 hours ago

Farwa

Ninety-four percent of domestic customers will benefit from the budgetary subsidy in 2024, according to a World Bank report, which credits the increase in protected consumers with contributing to the weight of subsidies.

In the current fiscal year, the electricity sector subsidy has increased by an astounding Rs. 954 billion, from Rs. 236 billion in the 2020 fiscal year to Rs. 1190 billion.

Notwithstanding changes, the circular debt has averaged Rs. 400 billion yearly over the last four years due to the incapacity to minimize losses and inadequate recovery of electricity payments.

According to the World Bank, the government must solve the fundamental problems in the power industry in order to lower the burden of subsidies and circular debt, as rising electricity prices and inadequate tax collection will only serve to worsen the circular debt crisis.

The rise in Pakistan’s power sector circular debt has raised worries from the World Bank (WB) despite an unprecedented increase in energy pricing.

Within the last six years, the debt has grown by 1241 billion rupees, according to the World Bank’s study. Between 2019 and 2021, the debt climbed by 1128 billion rupees.

The electricity sector’s circular debt has been increasing at an alarming rate, according to a World Bank analysis. Between 2022 and 2024, there was a substantial increase of 113 billion rupees.

Pakistan’s electricity industry has 2393 billion rupees in total circular debt as of 2024.

Restructuring is required to solve the circular debt issue, according to the World Bank.

Business

Final settlement: Govt to pay five IPPs Rs 72 billion.

Published

22 hours ago

Farwa

On October 10, Prime Minister (PM) Shehbaz Sharif declared that the agreements with five IPPS would be terminated in the first phase. Sources claim that the government will give Rs 15.5 billion to Rousch Power and Rs 36.5 billion to Hubco.

In a same vein, the federal government would pay Lalpir Power Rs 12.8 billion, Atlas Power Rs 15.5 billion, and Sapphire Power Rs 6 billion.

The sources state that late payment fees are not included in the settlement. With effect from October 1, the agreements with the five IPPs will be considered officially ended.

PM Shehbaz earlier remarked that the termination was carried out with the owners of the IPPs’ mutual permission while presiding over the federal cabinet meeting in Islamabad.

The Prime Minister notified the Cabinet that the only money that will be paid, interest-free, to these IPPs is the outstanding balance.

According to him, the national exchequer will gain over 411 billion rupees from the termination of these contracts, while power customers will save roughly sixty billion rupees.

According to Prime Minister Shehbaz Sharif, it was the result of the arduous teamwork of the entire government. In this regard, he also acknowledged the contributions and assistance of the associated parties. He specifically mentioned General Asim Munir, the Chief of Army Staff, who showed a personal interest in the situation.

The prime minister characterized the development as the start of a trip that will ultimately lead to the advancement and prosperity of the populace.

PM Shehbaz Sharif also brought up the assistance that the Punjabi and Federal governments gave to power users over the summer.