Pakistan & Gulf Economist

Circular debt build up to over Rs 100bn this year

Researchers believe that with the rise in energy usage by developing states, the financial crises has enveloped because of energy poverty. Issues like circular debt are now a main factor that has a drastic impact on the economic situation of such states. It is also believed that energy sector, being a main constituent of the economic structure of such states, has a main role to play for changes in economic condition. In the developing states like Pakistan, the present government is fruitfully overcoming energy crisis, which has direct and indirect impact on the whole economy, by rise in generation also in transmission capacity of the system.

Currently, energy sector is confronted with demand supply gap, which needs to be filled up along with improvement in energy-mix for its supply at lower cost. In terms of energy-mix, the country’s reliance on thermal, which includes imported coal, local coal, RLNG and natural gas has been declining over last few years. The government officials said that the country’s dependence on natural gas in the overall energy mix is on fall and the reduction of its share in the energy mix may be attributed to falling natural gas reserves also to the introduction of LNG since 2015.

Statistics also showed that the share of renewable has steadily increased over the years. Furthermore, the shares of hydro and nuclear in energy-mix have also increased in FY2020 as against to FY 2019. Such historical variability for each energy source in the energy mix of Pakistan has been utilized to formulate the Integrated Energy Plan. It is also said that this plan will not only assist in envisioning the energy demands and respective supply paths of the future but also to formulate evidence based on long term policy options.

Statistics presently released by the dissimilar sources that the circular debt build up for the period of July-April ongoing fiscal year has been reduced by Rs 189 billion as against to the last year. It is also recorded that the circular debt build up in July-April this fiscal year is Rs 260 billion as compared to Rs 449 billion same period last year, taking a reduction of Rs 189 billion. It is also said that the full year circular debt build up this year is predicted to be greater than Rs 100 billion less than the circular debt build in the previous era.

Sources revealed that the huge improvement in energy sector performance and slow down in build up of circular debt has been the consequence of sustained hard work, analytical data based decision making and willingness to break the nexus between decision makers and powerful elite. It is also important to note here that unluckily the country suffers acute energy crisis; an uninterrupted and inexpensive energy supply is a fundamental precondition for Pakistan’s sustainable economic growth. The energy crisis is estimated to cost almost 2 percent of the Gross Domestic Product (GDP) yearly by lowering economic output and exports. No doubt, the chronic energy crisis has forced the closure of thousands of factories (counting greater than 500 alone in Faisalabad), paralyzing economic activity and exacerbating unemployment.

Although much of the criticism goes to flawed energy strategies pursued for decades through various administrations, poor transmission and distribution capacity — stalled at almost 22,000MW against the demand of greater than 25,000mw remains a real concern for Pakistan’s energy security.

In addition, seasonal fluctuations further add to Pakistan’s energy deficiency. With rising economic activity, the demand for uninterrupted and reliable power supply is also increasing. To meet the growing energy demand, the burden lies on natural resources which are depleting at a rapid pace. Therefore, the country desperately needs to devise a comprehensive strategy to secure its resources, while maintaining its economic growth. In this regard, the experts say nuclear energy has the full potential to lift the burden from the rapidly depleting energy resources.

Furthermore, statistics identified that earlier this month the China Pakistan Economic Corridor (CPEC) power projects were also hit through the circular debt and that the government of Pakistan has not been able to clear Rs 188 billion due payments in breach of a bilateral energy framework agreement. Although the outstanding payments are only 18.4 percent of the billed amount, it has started affecting the financing models of the Chinese sponsors of the Independent Power Producers (IPPs), set up under the CPEC contract. Statistics also identified that Pakistan has so far paid Rs 832 billion on account of power purchase price to the Chinese IPPs. The Central Power Purchase Agency Guaranteed (CPPA-G) could not clear Rs188 billion worth dues. The outstanding amount is only 18.4 percent of the total billed amount of Rs 1.02 trillion, which is not a very large sum. Total 82 percent payment ratio was very good given the fact that total outstanding circular debt has increased to Rs 2.6 trillion.

Exit mobile version