The Power Division in Pakistan has taken significant steps to address the country's energy challenges, sharing its Circular Debt Management Plan (CDMP) with the International Monetary Fund (IMF) and the World Bank. It serves as the foundation for revising the base tariff, incorporating the impact of Quarterly Tariff Adjustments (QTAs).
Pakistan's power sector is grappling with a staggering circular debt of Rs2.31 trillion for the fiscal year 2022-23, indicating a worrying Rs57 billion increase compared to the previous year.
A government official, speaking on the condition of anonymity, explained that the CDMP gained approval from the federal cabinet after Nepra's endorsement of tariff re-basing in July. Since its approval, no adjustments have been made to the CDMP, solidifying the government's commitment to fiscal discipline within the energy sector.
The CDMP was formulated when the exchange rate was Rs 286/$, but the subsequent re-basing was based on an exchange rate of Rs 296/$. Other key factors used in the re-basing included RFO price, RLNG cost, imported coal prices, USCPI, local CPI, and KIBOR rates.
The official clarified that any differences between the benchmark exchange rate of Rs 286/$ and the actual exchange rate at the time of filing QTA adjustment petitions will be addressed in October 2023. Expectations are that the exchange rate will remain below Rs 300/$.
The official argued that the average tariff is likely to remain stable at around Rs 42 to Rs 43 per unit, as no substantial variations are anticipated in CDMP estimates. However, the possibility of tariff adjustments remains if the exchange rate becomes volatile, or if fuel prices for LNG and coal experience further increases, factors beyond the control of the Power Division.
On the other hand, Pakistan's power sector faces formidable challenges, including a colossal circular debt amounting to Rs 2.31 trillion for the fiscal year 2022-23. This represents a concerning increase of Rs 57 billion compared to the previous year, despite a recent decrease of Rs 336 billion in circular debt by June 2023.
Outstanding payments to power producers have surged significantly, with liabilities rising from Rs 1,351 billion to Rs 1,434 billion in FY23. Payables to Generation Companies (Gencos) have also increased to Rs 111 billion. Notably, the debt to Pakistan Holding Limited (PHL) decreased to Rs 765 billion in the same fiscal year.
Similarly, a significant portion of the circular debt, approximately Rs100 billion, has also been attributed to interest payments to power producers on delayed payments.