The debacle regarding circular debt has reached startling proportions, almost over US$4 billion engulfing the energy sector, which include private power producers. The intensity of the situation shows that the various IPPs are finding it enormously difficult to sustain their ventures. At least one of them has faced partial breakdown because of lack of minimum maintenance driven by insufficient funds. While certain companies are terror-stricken as default on their debt compulsions and failure for payments is on the cards. The only remedy available to the IPPs will be to urge the responsible authorities and high-ups of the government to guarantee and settle their overdue balances which in many cases are as old as four to five months. If the situation persists, it would have far reaching consequences for the national economy. The gross effect will not only impact the debt funding but also quake the faith of global investors, especially at a time when Pakistan is on the verge miserable decline of power nestled with shortage. This situation has created a mess in the power sector, which will end in the horrible and disastrous economic meltdown that is simply unaffordable. A series of consultative sessions with the leading figures of IPPs has concluded a very pessimistic condition as far as PEPCOs capacity to handle the crisis is concerned. The IPPs think that the concerned officials have taken it ill their continuous pursuit of the much delayed payment schedule and have even stopped taking calls, These officials are now directing the IPPs to the Finance Ministry. The consensus opinion is that MD PEPCO is unreachable whereas other relevant officials of WAPDA and PEPCO have raised their hands to convey their inability to help while stating that the issue is beyond their control. As a result of this there is a vacuum. Effectively, the Ministry of Water and Power and Ministry of Finance are jointly managing the financial affairs of WAPDA and PEPCO. According to the IPPs, Despite the fact that they and the country is passing through testing times, the role of PEPCO officials is at best evasive and at worse, non cooperative. The energy sector inter-corporate circular debt issue surfaced in the later part of 2006 when WAPDA started facing serious liquidity issues. The situation stemmed mainly from a number of factors: > Rise in global oil prices; > Non-payment of electricity charges by public entities, KESC and tribal areas to WAPDA; > The adverse change in generation mix, 68 percent towards thermal of which approximately 52 percent is generated using imported furnace oil; > High transmission losses; > Inherent inefficiencies in WAPDA-owned power stations due to technical issues and obsolescence; and > Power thefts. All of the above factors contributed towards widening the gap between the generation cost and then prevailing power tariffs. As these factors compounded, the government continued subsidising the power sector mainly due to political reasons. The total power sector subsidy during three fiscal years (2007-10) aggregates to Rs312 billion including a forecast subsidy of Rs 170 billion against budget allocation of Rs 66 billion for 2009-10. Even several rounds of tariff increases and fuel adjustment have been inadequate to bridge the imbalance between the generation cost and the power tariff. This led to a colossal inter-corporate circular debt due to cross defaults by fuel supply chain entities. Given the sensitivity of the issue, the IMF made it mandatory for the government to settle the inter-corporate circular debt in order to be eligible for the economic assistance package offered in 2009. As part of the commitments made by the government of Pakistan, two tranches of Term Finance Certificates (TFCs) aggregating Rs 165 billion were issued. The TFCs were made to be subscribed by commercial banks and financial institutions and were structured to mainly assist the oil-fired IPPs; OMCs/gas companies; and refineries to settle their corresponding obligations to each other and to the commercial banks and financial institutions to whom they owed short-term borrowings. Owing to the utter neglect of the rising issue, the volume of circular debt is increasingly shooting up, in spite of the remedial actions taken by the government. Till date, it is apprehended that the amount of the debt stock of different power entities has soared to about Rs 165 billion, including over Rs 56 billion alone owed by WAPDA to three major IPPs. The Finance Ministry has made periodic cash injections to enable the state utility to barely stay afloat, with the main purpose of avoiding a collateral damage of the private entities in power generation. In a nutshell, if the looming crisis is not addressed in time to avert an absolute collapse, the whole nation will have to face the consequences. It must be realised that without a rational and long-lasting strategy, a reliable system can never be established. The Pakistan Electric Power Company has a vital role to play in resolving this grave national crisis. It is high time for the authorities to tide over the crisis. The writer is a freelance columnist. Email: nasir.adnan@yahoo.com