FPCCI panel warns government against worsening electricity sector circular debt – Business & Finance

LAHORE: Chairman of Businessmen Panel (BMP) of Federation of Chambers of Commerce and Industry of Pakistan, Mian Anjum Nisar has warned new government against worsening circular debt in power sector , which would continue to haunt him with the challenge of dealing with rising crude oil. oil price on the world market.

He said the circular debt problem of the electricity sector should be solved comprehensively without increasing the cost of electricity, as its size has more than doubled in the past three and a half years despite the increase in the electricity tariff several times in the past.

At present, the oil and gas sector is reeling from circular debt worth Rs 1.6 trillion, while the power sector has circular debt close to Rs 2.5 trillion rupees. Rising gas demand forced the previous government, which ruled the country from August 2018 to early April 2022, to divert expensive LNG to residential consumers in the winter. However, there was no mechanism in place to collect dues from the national sector.

Now, LNG has become a major contributor to circular debt, causing the financial health of Pakistan State Oil and Sui Northern Gas Pipelines Limited to deteriorate. PSO is to receive more than Rs 270 billion from SNGPL due to LNG supply, while SNGPL is to recover around Rs 100 billion from the domestic sector, according to industry players. The oil division is expected to seek approval from the new government for the provision of Rs 26 billion, out of a total of Rs 41 billion, to SNGPL to cover the subsidy on LNG supplies to export-oriented sectors.

Apart from circular debt issues, price differential claims of billions of rupees are emerging due to oil price review freeze as crude oil hit multi-year highs in the international market.

Already, Pakistani consumers are paying record prices for petroleum products.

“We need to solve the circular debt problem by revamping the whole electricity sector, including tariff setting, efficiency of power generation units, the supply chain network and payment collections. If this is not done, the future of the energy sector will remain at stake,” warned Anjum Nisar.

He said the problem in the power sector is a multi-faceted problem and the government must avoid raising costs further, especially for the industry.

He said the government said it has made efforts to improve efficiency but the situation in the power sector remains bleak despite placing an additional burden of Rs 165 billion on consumers in the over the past year by increasing electricity prices. In the financial year 2021-2022, the government provided Rs 133 billion less in subsidies compared to requirements based on a reduced rate of tariffs for various categories of consumers.

The government recently prepared a circular debt reduction plan, but the new plan, drawn up in consultation with the International Monetary Fund, shows that circular debt reduction will largely depend on rising electricity prices. .

Mian Anjum Nisar said the issue of circular debt will continue to haunt the government’s resolve to reduce the cost of doing business and promote the industry. The continued increase in the flow of circular debt went against government promises to reduce circular debt to zero. He is going to make another plan to reduce the debt, mainly by increasing electricity rates, which is not the right way to deal with the issue.

Circular debt in June 2018 was 1.148 trillion rupees and increased to 2.327 trillion rupees in June 2021, an increase of more than 100% in three years of government. Referring to a report, he said the government had added an additional Rs 72 billion to circular debt due to interest payments to PPIs on late payments which were 31% higher than in the year. former. Similarly, another Rs 37 billion was added as interest paid on loans from Power Holding Limited, 47% less than the previous year. This is despite the fact that consumers also pay a debt service surcharge on their monthly bills.

The former president of FPCCI and the president of BMP called for reforms in the electricity sector, considering the issue of over-billing, technical losses, transmission problems, the proposed decentralization of the sector, promotion of off-grid solutions, incentives for renewable energy solutions and capacity payments to independents. electricity producers. He added that if the government did not take immediate action, the power sector would risk stifling due to heavy unpaid dues.