Power Sector’s Circular Debt Will Fall to Rs. 1.1 Trillion by FY 2023

The power sector circular debt is likely to stay above Rs. 1.1 trillion by the end of the fiscal year 2023, against the current level of nearly Rs. 2.55 trillion, a local media outlet reported on Monday.

These estimates are projected despite repeated tariff increases, buying out several old independent power plants (IPPs), fuel conversions, tax rationalizations, and timely subsidy payments over the next two years, the news report added.

If these actions are not taken either, then the circular debt can easily soar to Rs. 4.7 trillion by the end of FY2023. However, with some efficiency improvements, such as a five percent increase in recovery and less than one percent in technical losses, the circular debt can be contained within the limit of Rs. 4.4 trillion by 2023.

The “tariff rebasing and quarterly adjustments” can further move the needle down to approximately Rs. 3.5 trillion in two years.

Pakistani authorities have reportedly reached an understanding with the Chinese financial institutions, under China-Pakistan Economic Corridor (CPEC), to take measures that will reduce the financial burden on the government by Rs. 5 billion during the next fiscal year.

If successfully implemented, these measures will also save Pakistan nearly Rs. 25 billion, which is Rs. 30 billion collectively in two years. These savings will primarily be on account of extension of debt tenor, the news report added.

This revised circular debt management plan (CDMP) will be presented to the Federal Cabinet this week for approval and implementation.

The average tariff is projected to be Rs. 20.25 per unit by FY2023 as compared to Rs. 15.4 per unit at present.

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