Soaring debt: Pakistan on the way to bankruptcy

The IPPs had launched a media campaign to present their issues when Nawaz Sharif was the prime minister. However, the government had asked these power producers to stop the campaign and told them that a summary was prepared to be tabled before the Economic Coordination Committee (ECC) to approve guarantees to borrow Rs55 billion from commercial banks to retire the circular debt.

At present, different entities owe the PSO around Rs285 billion, and Rs256 billion of this amount is outstanding against power generation companies.

The PSO is also to receive Rs15.6 billion from the Pakistan International Airlines (PIA) and Rs4.2 billion from the Sui Northern Gas Pipelines Limited (SNGPL). The state-run oil marketing company is to pay Rs12.7 billion to local refineries and Rs65.6 billion to Kuwait and Qatar on account of oil and LNG imports.

Electricity in Pakistan is generated, transmitted, distributed, and retail supplied by two vertically integrated public sector utilities: Water and Power Development Authority (WAPDA) for all of Pakistan (except Karachi), and the Karachi Electric (K-Electric) for the city of Karachi and its surrounding areas. There are around 42 independent power producers (IPPs) that contribute significantly in electricity generation in Pakistan.

Electricity generation has increased by 3.18% in 2015 as a result of Government of Pakistan (GoP) efforts and China–Pakistan Economic Corridor (CPEC). The country has begun diversifying its energy producing capacity by investing in coal, nuclear energy, solar energy and wind energy to help offset the energy shortage while larger projects greater than 1000 MW such as the Diamer-Bhasha Dam, Kohala Hydropower Project, Pakistan Port Qasim Power Project, Sahiwal Coal Power Project, Thar Engro Coal Power Project, Hub Coal Power Project and new nuclear plants are now under construction or planned.

Overall recoveries crossed 93% consecutively in fiscal years 2015 and 2016 as compared to 88-89% in 2014. Transmission and distribution losses declined to 17.8% by end Dec 2016 against 19% in 2014. This resulted in a positive cash flow to the power sector, totaling to Rs116 billion in these two years.

Generation companies were making a cumulative loss of Rs7.78 billion in 2013-14. They not only overcame their losses but also reported a profit of Rs5.77 billion in 2015-16.

All these achievements as well as a historic drop in oil prices helped keep the power sector’s circular debt within the range of Rs320-330bn from December 2014 to June 2016.

These two fiscal years are the only period in over a decade when no losses were paid out of the federal budget. The payment will be around Rs200 billion annually. This has reduced the budgetary burden from 2.4% of GDP to 0.7%.