POWER sector continues to grapple with a longstanding adversary: circular debt. Despite successive governments’ vows to curb it, recent figures reveal a disheartening reality. In the first seven months of the current fiscal year, circular debt has ballooned to a staggering Rs 2.636 trillion, surpassing the government’s pledged containment target of Rs 2.3 trillion. This alarming escalation underscores a systemic issue that demands urgent attention and comprehensive reform.
Circular debt, in essence, represents a vicious cycle of non-payment and accrued liabilities within the power sector. Its proliferation not only undermines financial stability but also obstructs the sector’s ability to function effectively. The repercussions of this malaise are manifold and dire. Despite resorting to repeated tariff increases—via base annual tariffs, quarterly adjustments, and fuel cost adjustments—the circular debt has continued its remorseless ascent. Shockingly, in the first seven months alone, it surged by Rs 325 billion. This worrisome trend sheds light on the ineffectiveness of conventional measures in tackling the root causes of circular debt. A closer examination reveals the multifaceted reasons behind this alarming surge. Poor revenue recovery by distribution companies, exorbitant system losses, unresolved generation costs, non-payments by major entities like K-Electric, and accumulating interest charges collectively contribute to the predicament. It is particularly distressing that despite the government’s efforts to recoup approximately Rs 116 billion from consumers in the previous year, circular debt remains on an upward trajectory. Of notable concern is the substantial increase of Rs 284 billion attributed to distribution companies themselves—a staggering 19pc surge within seven months. Reforms have become imperative, especially within distribution companies, to streamline operations, enhance efficiency and ensure robust revenue collection mechanisms. Mere reliance on tariff hikes is not a sustainable solution. Instead, the government must prioritize systemic improvements aimed at curbing losses, improving recoveries and fostering a culture of accountability within the power sector. The time for action is now.
