Pakistan's power sector circular debt climbs by Rs325bn in 7MFY24

May 23, 2024 (MLN): Pakistan's power sector circular debt has surged by Rs325 billion in the first seven months of the ongoing fiscal year (July-January 2024) to reach Rs2.635 trillion, compared to the debt worth Rs2.31tr by the end of fiscal year 2023 (FY23).

According to the breakup provided in the debt report released by the Power Division, the rise compared to the previous fiscal year is attributed to a number of reasons, with an increase of Rs214bn in the pending generation costs being the most crucial one.

Additionally, the under recoveries of DISCOs and their losses inefficiency also observed a rise of Rs198bn and Rs86bn in these 7 months compared to FY23.

The interest charges borne by Power Holding Limited (PHL) and Independent Power Producers (IPPs) within the power sector rose by Rs72bn in 7MFY24 compared to FY23, worsening the debt situation.

The data further shows that the dues by K-Electric during this period also increased by Rs11bn.

On the other hand, a notable drop was observed in Budgeted but unreleased subsidies, prior year recoveries (other adjustments) and stock payments worth Rs3bn, Rs116bn and 137bn, respectively in 7MFY24 compared to FY23.

However, with the burden of dues, inefficiencies, and losses increasing significantly, the country incurred additional debt in 7MFY24 against the debt as of FY23.

The power division attached two important notes in the report. Firstly, it mentioned that the amount payable to power producers increased by Rs5bn due to withdrawal by the FBR in April 2023.

Secondly, it noted that Rs356.9bn is receivable from K-Electric as of January 2024.

Further comparison of the data reveals that in the same period last year (7MFY23), the debt stood at Rs2.626tr. This indicates that on a year-on-year basis, the debt has risen by a marginal Rs9bn or 0.34%.

Earlier this month, the International Monetary Fund (IMF) in its second and final review report also highlighted that Pakistan’s power sector circular debt has remained broadly flat since October 2023 after some slippage earlier in the fiscal year.

The Fund stated that the gap was attributed to lower-than-expected recoveries following the large annual tariff rebasing in July 2023.

Moreover, the stability since October 2023 is due to continued efforts to bring energy tariffs in line with costs and, in the power sector, continued anti-theft measures.

Read: Pakistan’s power sector circular debt stable since October 2023: IMF report

Moving ahead, as Pakistan aims for a larger and more extended program with the global lender, continuous upward revisions in gas and electricity prices may be expected.

The IMF has identified the circular debt as a major concern for the country and may prioritize it as one of its top conditions.

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