Pakistan’s Energy Sector Circular Debt Falls 85% Between July and August

Minister for Energy, Hammad Azhar, said on Friday that the flow of circular debt from the energy sector has started decreasing.

The energy minister tweeted that the flow of circular debt in the power sector during July and August fell to Rs. 13 billion from Rs. 86 billion, a decrease of 84.77%, compared to the same period last year.

The energy sector’s circular debt is “a vicious cycle of unpaid bills in the power sector, starting from the power generation end of the process, and going all the way to the distribution process to recovery and electricity theft,” according to an article by Business Recorder.

The circular debt stood at Rs. 2,280 billion as of June 30, 2021, as compared to Rs. 2,150 billion as of June 30, 2020, and has reached Rs. 2.327 trillion as of August 31, 2021.

The country’s commercial banks have reportedly refused to finance power projects due to the energy sector’s circular debt.

A report recently published by the National Electric Power Regulatory Authority (NEPRA) highlighted some of the main issues plaguing the power sector.

In its “State of Industry Report 2020-21,” NEPRA said that a number of cost-efficient power plants are being underutilized.

The regulator added that distribution and high transmission losses, failure of payment of subsidies, and low recovery of the billed amount were some of the major reasons behind circular debt.

Some other reasons that contribute to the power sector’s circular debt include insufficient consumer tariffs that compensate for the rising costs of power generation, as well as challenges associated with the recovery of dues from consumers.

At the same time, the electricity generation cost per unit (kWh) has increased by up to 61.55 percent in August 2021 compared to August 2020.

Meanwhile, the federal cabinet has approved a seasonal electricity discount measure, through which it will provide a Rs. 7 per unit relief for electricity consumers that utilize the surplus electricity between November and February.

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