Circular Debt Issue to Resurface Again Before the 2018 Election

The circular debt problem that the current government is facing is exactly the same which the previous government faced. That is, for every 100 units of power produced, 70 units are utilized while the remaining 30 are wasted in corruption, theft and non-recoveries.

Consider this – if we produce 10,000 MW of electricity, 7000 of it would be used while the remaining 3,000 lost. If we double our electricity production in hopes to meet the demands of the populace, the problem would only worsen. Once we start producing 20,000 MW of electricity, 14,000 MW would be used and 7,000 wasted. We cannot simply increase production to meet our demands.

Millions of Rupees Lost Each Day

These inefficiencies and losses account for millions of rupees every day. This could be the reason why the plague of load-shedding has continued despite advances in electricity production. Power managers wanted to minimize losses this way. Their philosophy was that with lesser power produced, the losses would be lower as well.

Experts are concerned that the managers have failed to bring about efficient changes in the system after the debt piled up by the previous government was cleared in June 2013. Its not that the power managers did not know the flaws in the system, it was more due to negligence on their part. The flaws in the electricity production/distribution were pointed out in an audit report made by a UK Consultant firm, funded by USAID.

The report mentioned how the fuel used to power the turbines was being stolen and the generators were not being maintained correctly. It mentioned details about other inefficiencies and problems as well.

Another reason for less recovery of power bills was due to the private and public sector consumers not paying their bills at all. The non-recovery of power dues from the private sector consumers shows that the government does not want to take action against powerful segments of the society.

Regular Consumers Bearing The Brunt

The regular consumer had to bear the brunt to cover for these losses. Non-payment of power bill, for just a single month would mean no more electricity for the following month.

As for the distribution losses, power theft was the main culprit here, according to the audit report. Over the years power theft has increased a bit instead of decreasing, this points towards the inadequacy of the power managers.

In the current situation where 7,000 MW to 10,000 MW of power will be added to the national grid within the next year, the debt incurred by the government will only increase. Per unit cost of electricity will stand at 9.2 US cents.

Factoring in the losses this would mean a 2.9 cent per unit loss for the government for each unit of electricity produced.

Circular Debt To Rise Further

One of the promises made by the current government was that the menace of load-shedding would be eliminated. With only a year to go before the next elections, the government would be activating all available power generation sources to follow up on that promise. This would not only bring more power loss, it would cause the circular debt to balloon as well.

Another side of this issue is large industries opting out of the national grid and producing their own power. This minimizes the costs for them and does not include the added burden of load-shedding that comes with using government produced electricity.

The power companies lose a major customer due to this problem who pay their bills on time and are not involved in power thefts. They are now supplying electricity to a larger number of power thieves than before.

Possible Solution

A possible fix for this problem would be privatization of the power distribution companies. This would help eliminate inefficiencies in the system and will reduce power thefts and corruption, since private companies tend to be big on the financial bottom-line.

The government should look for a solution to this problem otherwise it would just increase the burden on the national exchequer.

If this situation continues the national debt will only keep increasing until the next government comes in and decides to remedy this issue by throwing more money at it, only to let the cycle repeat itself.

Via The News

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