Government to end circular debt in 2 months - Finance Minister

Promise

Federal Finance Minister Ishaq Dar promised to end Pakistan’s crippling circular debt, worth over Rs 500 billion, within 60 to 70 days. The minister promised this while presenting an economic survey of Pakistan on June 11, 2013

Plan

The finance minister said that the government would take hard decisions for the betterment of Pakistan’s economic conditions. While revealing the government’s plan, he said that ‘line losses’ were also part of the circular debt, and that the government would try to come up to par with international standards. He also vowed to take effective measures to bridge the difference between the cost of electricity and its price.

The finance minister noted that non-payment of bills was also a major issue. “We will not only reduce it, but minimize it. We will try to resolve this problem of non-payments,” he said.

Background

According to the Economic Survey of Pakistan, 2012-13, Pakistan’s economy continued to face challenges like energy shortages, floods and rains, poor law and order situation, and a host of other structural impediments that have held back investment and growth in the country. The economy of Pakistan during the last five years grew at an average rate of 2.9 percent per annum. Deterioration in the power sector is the main constraint on growth. Power outages have shaved off annual GDP growth 2 percent. GDP growth has been stuck at the same level, which is half of the level of Pakistan’s long-term trend potential of about 6.5 percent per annum.

According to the Pakistan Bureau of Statistics, the Gross Domestic Product (GDP) in Pakistan expanded 3.59 percent in the fiscal year 2012-13 from the previous year.

Fulfillment

The promise stands fulfilled as the federal government has released details of payments of Rs480 billion to Independent Power Producers ( IPPs) and state-owned entities in a bid to address transparency concerns. On July 23, the Ministry of Finance released details of payment of circular debt to oil companies and power producers. In a statement, the spokesperson for the finance ministry said that Rs 480 billion worth of debt was paid, and the details of the payments were posted on the official website of the ministry.

The total circular debt amounted to RS 503 billion prior to the payment.

Tracking

Shafqat Jalil, media director general at the Finance Ministry, said that the government was trying to bridge the gap between the cost of electricity and its price, adding that the government had allocated Rs 220 billion for subsidy on power.

He told Truth Tracker that currently, a 1.5 billion rupees subsidy was being paid per day, and that the circular debt had again swollen to 90 billion rupees in just two months. While elaborating on the reasons behind the circular debt, he said that the electricity cost was Rs 14.70 but the tariff approved by NEPRA was Rs 8.89 per unit, creating a gap of Rs 5.81 per unit that ultimately had to be paid by the government.

On the measures taken to avoid the circular debt, Jalil said that the results of government’s new energy policy would be released in October this year.

Independent View

Former finance minister Salman Shah said that the circular debt issue couldn’t be avoided in the existing system where the power sector was dominated by the government. He added that the long term contracts were not competitive to the market and not transparent and workable. “The government has to deal with monopoly in the power sector and power reforms should be implemented,” Shah said.

The former finance minister said that new dams like Kalabagh Dam and Ghazi-Barotha Hydro-power Project needed to be built on priority basis. “The launching of Gaddani Power Project is again an IPP project and it is not transparent,” he confirmed. He also suggested that the government needed to regulate and privatize the sector. “In order to have a transparent power dispatch system, the government will have to take emergency steps and ensure a transparent, competitive market in the country,” he suggested.

It is true that the government managed pay off pending outstanding amounts of circular debt, but new debt also amounts to billions of rupees that will continue to increase. Therefore, Truth Tracker rules that the promise has been compromised.