The Government Aims To Reduce Circular Debt By Rs425 Billion FY22

The Government Aims To Reduce Circular Debt By Rs425 Billion FY22

In this photo, Planning and Development Minister Asad Umar presides over a meeting of the Cabinet Committee on Energy (CCoE).

The Power Division on Friday said it planned to reduce circular debt by nearly Rs425 billion during the current year (FY22) to Rs1.856 trillion, mainly through prior-year consumer recoveries via a base rate of around Rs230bn.

The Power Division warned in a report to the Cabinet Energy Committee (CDoE) that the circular debt accumulation during this year was expected to be Rs400 billion, owing to flaws on the part of power companies and the government. However, by recovering Rs230 billion through consumer tariffs in advance, this would be reduced to Rs165 billion.

This is one of the CCoE’s newest circular debt management plans that is currently under review by the CCoE, as required by the IMF program. On Friday, a meeting of the committee attended by Planning and Development Minister Asad Umar reviewed current circumstances.

The new government would handle the repayment of principal debt parked in Power Holding Limited (PHL) and stock payments of around Rs461 billion. Circular debt will rise by Rs60 billion due to interest charges on late payments to independent power producers (IPPs), according to a Reuters report.

The Rs150bn accrual to circular debt would be completed owing to outstanding generation expenditures like quarterly and monthly price hikes, Rs77 billion in distribution company loss efficiency losses, and Rs130 billion in Discos’ deficit recoveries. The Power Division said that as of June 2021, the pending amount due to a dispute over subsidy was around Rs292 billion.

According to the Power Division, it intended to ensure that Rs461 billion in outstanding arrears to IPPs are settled during the current financial year. According to the document, debt accumulation had decreased to just Rs13 billion per month in August but increased again to Rs85 billion in September before peaking atRs2.379 trillion this month.

The CCoE was informed that circular debt increased from Rs2.254tr in July to September 2020 to Rs2.379tr in 2021, according to finance ministry data.

The committee gave the September 2021 circular debt report a thorough examination and commended the declining debt accumulation in the first three months of FY2021-22.

The Petroleum Division also gave an update on the development of strategic petroleum reserves. The meeting was informed that a working group, made up of OGDCL, PSO, Pepco, Parco, TPPL, and PRL, was formed to develop a concept paper and study the country’s required strategic reserve quantity. The group has completed its initial assessment and is now planning a thorough feasibility study based on recommendations passed by the group.

The meeting was informed that a proposal on this subject had been prepared by the maritime department as well. The CCoE directed that a committee be formed under the Oil and Gas Regulatory Authority with representatives from the Ministry of Maritime Affairs and Petroleum Division to finalize the proposal and assess the comprehensive framework for establishing strategic petroleum reserves.

The Finance and Sustainable Development Standing Committee considered a report from the Power Division on basic security arrangements for small hydropower projects (up to 50MW) under the Power Generation Policy 2015. It was informed that the policy intended to support both large and little hydel power development. The CCoE agreed with the framework for ongoing and committed power generation.

The CCoE has established a market-based system for small dams, according to which risk and liability will not rest with the taxpayers. These regulations include the Competitive Trading Bilateral Contracts Market and “Wheeling Policy,” both of which have been created with this goal in mind. The CCoE mandated that the framework for little dams be consistent with overall policy development.

The ministers of finance and energy, the prime minister’s adviser on commerce and industries, the prime minister’s special assistant on CPEC, regulatory agency representatives, as well as senior officials from relevant ministries/departments were in attendance.

 

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