Plan to transfer Rs1060b burden to power consumers to cut circular debt
Islamabad – The government is planning to transfer the burden of Rs 1060 billion to the power consumers during next 27 months (March 2021-June 2023) to reduce the circular debt (CD) under the Circular Debt Management Plan 2021 (CDMP-21).
Under the Circular Debt Management Plan (CDMP) it is proposed that Rs 194 billion will be collected through quarterly adjustments, while Rs 866 billion will be collecting through increasing/ rebasing in power tariff which will be used to reduce the CD, official source told The Nation.
The Cabinet Committee on Energy discussed the summary of comprehensive CDMP-2021 which covers the three years period from FY2020-21 to FY2022-23 and describes the mechanisms and initiatives to address the issue and suggests an action plan to control the flow of Circular Debt with a monitoring matrix.
The Cabinet Committee on Energy (CCOE) met under the Chairmanship of Federal Minister for Planning, Development, and Special Initiatives Asad Umar here on Monday. The meeting was informed that reducing CD to ensure effective management of circular debt, there is a need to address the flow of circular debt through effective efficiency improvement measures. CDMP intends to reduce the existing flow of Rs 538 billion per annum to Zero per annum. Plan covers the period from March-2021 to FY 2023 and describes in mechanism to address the CD issue in Pakistan power sector and how to control the circular debt.
The Circular Debt Management Plan will include reducing the increase of CD. The plan, however, also proposes some measures as to how to reduce the stock of circular debt subject to approval from competent authority and concurrence of Finance Division.
Consumer tariff to increase from current Rs16.44 per unit to Rs18.99 by June 2021, to Rs20.38 by June 2022 and to Rs21.04 by June 2023
Besides generating Rs 1060 billion through tariff increase, the electricity distribution companies’ collections are planned to be increased by 5.73 percent which will bring Rs 204 billion by 2022-23 and losses have planned to be reduced by 2.12 percent through efficiency gains which will add another Rs 96 billion. Collection from government customers will be rationalized and subsidies will be on actual basis and paid according to schedule.
Other measures which will help in reducing the Circular debt includes AJ & K Gap arrangement through fiscal space will reducing the CD by Rs 68 billion, PHL loan conversion into public debt will reduce it by Rs 53 billion, PHL Markup funding through fiscal space by Rs 53 billion, IPPs Markup Impact of stock payment Rs 67 billion, IPPs Markup funding through fiscal space Rs 145 billion, Payment by KE(Fully Payment from July-21) Rs 303 billion. The Return on Equity (ROE) reduction will have an impact of Rs 146 billion, Subsidy budget increase-Fiscal Space will have an impact of Rs 378 billion. Similarly the consumer tariff will be increased from the current 16.44 per unit to 18.99 by June 2021, to Rs 20.38 by June 2022 and by Rs 21.04 by June 2023.
The meeting was informed that as a result of all the above measures the accumulation of circular debt would be reduced from the projected Rs 2565 billion by 2021 to 2023 to a saving of Rs 84 billion. During the ongoing fiscal year, it will be reduced by from the forecasted Rs 436 billion to Rs 351 billion, in 2022 against the projected accumulation of Rs 878 billion. These measures will bring a saving of Rs 281 billion in 2023 against the projection of Rs 1251 billion, it will save Rs 155 billion.
The CCOE approved the summary presented by the Power Division to ensure effective management of Circular Debt. The CCOE also discussed the need for fast-tracking action for implementation of Renewable Energy Policy approved by the Government. The Committee directed the Ministry of Energy to expedite action for the auction of renewable energy projects to ensure greater use of renewable energy resources.
The meeting was attended by Minister for Energy Omar Ayub Khan, Advisor to Prime Minister on Finance Abdul Hafeez Sheikh, SAPM on Petroleum Nadeem Babar, Special Assistant to PM on Power Revenue and official of various Ministries/Divisions.