Islamabad September 19 2023: The circular debt in the power sector decreased by PKR 336 billion in June 2023, bringing it down to PKR 2.31 trillion from the previous month’s PKR 2.64 trillion.
During the month of June, the decrease in circular debt was mainly attributed to several factors, including PKR 183 billion from prior-year adjustments in electricity bills, a payment of PKR 110 billion made by K-Electric, PKR 13 billion resulting from improved recoveries, the release of subsidies totaling PKR 72 billion, and the clearance of PKR 34 billion in circular debt stock.
However, over the entire fiscal year 2023, circular debt increased by PKR 57 billion compared to the starting point of PKR 2.25 trillion, marking an increase of nearly PKR 5 billion each month.
This is in contrast to the figures for fiscal year 2022 when the debt decreased by PKR 27 billion, going from PKR 2.28 trillion at the beginning of the year to PKR 2.25 trillion at the end due to massive clearence of PKR 564 billion from fiscal space, as reported by the Power Division of the energy ministry.
According to available data, the total payables in the power sector amounted to PKR 1.35 trillion, with PKR 101 billion owed to generation companies (Gencos) and PKR 800 billion as debt to Pakistan Holding Limited (PHL) during the fiscal year 2021-22. However, in fiscal year 2023, the payables to power producers surged to PKR 1.43 trillion, and the payables to Gencos increased to PKR 111 billion, while the PHL debt decreased to PKR 765 billion.
In fiscal year 2022, budgeted but unreleased subsidies were reduced by PKR 12 billion, but they remained at zero for fiscal year 2022-23. Similarly, unbudgeted or unclaimed subsidies decreased by PKR 133 billion in fiscal year 2022 but decreased by PKR 70 billion in fiscal year 2022-23.
Interest charges on delayed payments to independent power producers (IPPs) increased by PKR 105 billion in 2021-22 and another PKR 100 billion in fiscal year 2022-23. Additionally, the markup paid on IPPs’ claims by PHL, which increased by PKR 29 billion in 2021-22, rose by another PKR 43 billion. The pending generation costs, including quarterly tariff adjustments (QTA) and fuel charge adjustments (FCA), added PKR 414 billion to circular debt in fiscal year 2021-22 and PKR 250 billion in fiscal year 2022-23.
Dues from K-Electric contributed to a PKR 107 billion increase in circular debt in fiscal year 2021-22 but reduced it by PKR 53 billion this year. Inefficiencies in power distribution companies (Discos) resulted in an increase of PKR 133 billion in circular debt in fiscal year 2021-22 and PKR 160 billion in fiscal year 2023. Losses due to lower recoveries from DISCOs grew to PKR 236 billion in fiscal year 2022-23 from PKR 180 billion in the previous year.
On a positive note, the government recovered PKR 447 billion in prior-year adjustments through electricity bills this year, which reduced the increase in circular debt to PKR 220 billion. In fiscal year 2021, the government recovered only PKR 285 billion from customers for prior-year adjustments.
Crucially, the government cleared PKR 162 billion of circular debt through the budget, compared to the clearance of PKR 564 billion in the previous year. In fiscal year 2022-23, the government cleared PKR 35 billion of PHL principal payments and PKR 127 billion of stock payments, in contrast to the previous fiscal year when PKR 130 billion of PHL principal payment and PKR 434 billion of stock payments were cleared.
