Circular Debt an Endless Problem for Pakistan

PTI has experienced a great win in general elections and have started their government in an era of evident crises. The chairman PTI Imran Khan has acknowledged crises in his victory address to demonstrate seriousness of the issues. Most of the publicly owned companies have pushed economic crises to higher level during previous decades. Electricity sector has a crucial importance because it is not only increasing circular debt burden but is causing industries to shut down and exports to fall resulting in fiscal, current account and trade deficit. The severity of electricity crises made NTDC and state owned distribution companies mother of all problems as these crises have manifold effects. The reasons behind electricity crisis are numerous; among very important are circular debt, productions mix, flawed policies, implementation gaps, and inefficient pricing. The circular debt is at its highest peak record in the history. The upcoming government has to consider its payment through any means possible while main sources of circular debt which is lower revenue collections from electricity sector has gone through blind eye. Electricity crises are on the list of PTI’s agenda to work on in future where they are planning to produce most amount of electricity through hydro power plants to lower the prices and the amount of circular debt. Previous government has also given priority to hydro, gas and coal power plants and claimed lowering of electricity prices and circular debt but reality showed opposite of what was planned. Production mix is though very important contributor of circular debt, high prices and trade deficit but it is not the only reason.

Pakistani leadership and policy makers in previous eras had tried to change the production mix and encouraged private producers to contribute towards generation of electricity by breaking monopoly of WAPDA and KE in order to increase the capacity with greater efficiency but the production mix adopted by independent producer was mostly oil based thermal power plants. Pakistan is a resource rich country but is producing more than half of its electricity through thermal power plants which were adopted in 1990s when electricity crises first emerged and later on the policies kept increasing thermal power generation with little or no efforts for improvements of hydro and other sources of power generation. The electricity production mix had thus increased the consumption of oil which is imported in larger amounts from Middle Eastern countries mainly Saudi Arabia and rarely Iran. The import bill is high due to many factors but oil is not contributing as a smaller portion in it rather a huge share. To produce electricity, import of oil is inevitable but lower collection of revenues do not allow producers to buy oil and use the production capacity up to its full. This problem is addressed by previous governments through taking excessive amounts of loans contributing to higher debt and paying power producers.

Previous government adopted the historic solutions to lower collection of revenues and payments to power producers and held the claim that they addressed the circular debt as well as pricing issues which is why electricity crises are over but circular debt piled up again. This is because paying circular debt through loans can never put an end to it nor change of production mix can help eliminate it but will burden the country with more and more debt. The problem lies in the lower collection of revenues due to two main reasons; lower payments and high proliferation. This problem is related more to transmission and distribution sector relatively generation. Pakistani government owns transmission and distribution which requires immense attention to put an end to circular debt crisis. Although Pakistan’s household users are adversely affected by the crises but the economy received an appalling blow both of which are concerning elected government.

The problem for next government is to address circular debt issue to revive the economy through improvements in industrial sector as soon as possible to boost exports of Pakistan. India an emerging economy had saved the Indus tries from electricity crises which are disturbing the Pakistan’s economy adversely. Pakistan can adopt the approach India adopted long ago to meet the needs of industries by encouraging private producers to generate electricity near by the industrial sector. Those producers generate electricity only for the nearby industries and government regulates the prices and conditions. If generation gets higher producers sell the surplus electricity to households in close suburbs with the permission of government under states regulation through state owned transmission and distribution. This process lowers the transportation costs of electricity resulting in lower cost of production for industries. In most cases Industries start their own electricity production capacities and sell the surplus to government for other domestic use. India has adopted many more innovative and easy to manage ways for electricity production, transmission and distribution which can help Pakistan to end its electricity crises for better economic progress. In this way industries that use higher percentages of electricity are kept out of revenue collection which can also lower the circular debt of Pakistan. To cut long story short new government of Pakistan can solve electricity crises which are affecting every walk of life by not repeating the same mistake their previous counterparts have done. The first priority must be adoption of new technology for state owned transmission and distribution at a fast pace to lower down losses in revenue collection. India is a good example to follow the footsteps to keep industries out of electricity crises for unstoppable economic progress. The up gradation of whole transmission and distribution system with strict rule of law can save the country from piling of the circular debt next time.

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