ISLAMABAD - Planning Commission and United States Agency for International Development (USAID) have jointly calculated that power sector circular debt has reached Rs 872.4 billion by June 30, 2012 from Rs 84 billion in 2005.

Planning Commission and USAID unveiled the report titled Circular Debt Report on Tuesday. According to the report, the circular debt increased because of the non-collection of the revenue of Rs 384.5 billion, loss of Rs72.2 billion owing to delay in tariff notification, loss of Rs 53.3 billion under the head of non-implementation of fuel price adjustment, Rs 292.91 billion loss because of tariff differential subsidy, loss of Rs 69.55 billion because of not allowing the actual losses to be recovered.

The report further stated that tariff differential between the determined tariff and notified tariff stands at Rs3.08, which is to further swell to Rs6 per unit. Due to this, the power sector has so far suffered loss of Rs 98 billion. Further loss of Rs115 billion on the account of structural anomalies in tariff regime is also on the horizon.

Introducing differentiated notified tariffs in four Discos and raising the tariffs for other five to the maximum of these four (except for less than 300 unit residential slabs) will reduce the Tariff Differential Subsidy (TDS) gap by about 14%. Next step would be to bring these 5 Discos to a minimum tariff among these 5 Discos. This implies differentiated tariff for Mepco as well and for the other four (Hesco, Sepco, Pesco and Qesco) at the max of the 5 Discos that now have differentiated tariffs. This would potentially save another 9% for a total of 23%.

According to the report, the primary causes of circular debt include poor governance, delays in tariff determination by an adequately empowered regulator compounded by interference and delay in notification by the GoP; a fuel price methodology that delays the infusion of cash to the power sector; poor revenue collection by Discos, payment by the Finance Ministry on Tariff Differential Subsidy (TDS) and Karachi Electric Supply Company (KESC) which rewards the incompetent, contract payments, prolonged stays on fuel price adjustments granted by the courts and transmission and distribution loss improvements that cannot be achieved based on the regulator’s targets in the tariff.

The report said that government provided fuel subsidy has led to direct government allocation of fuel among consuming sectors of the economy, thus further distorting energy markets and contributing to shortages of fuel to generate power and add to the circular debt problem.