75 years after independence the Pakistani state is unable to ensure that the majority of its citizens have access to electricity. Electricity has now become unaffordable for a vast majority of households, with power producers and their fuel suppliers having their liquidity stuck somewhere in a deep hole, and the government accumulating a fiscally unsustainable mountain of debt that it doesn’t know how to get rid of.
As large part of this has to do with what is called circular debt. As an editorial in Dawn noted, “The continued inability — or avoidance — of successive governments to effectively handle circular debt, or the cash shortfall across the power sector supply chain, means that the arrears it cannot pay to the power supply chain have now spiked to Rs2.44tr from Rs2.25tr at the end of September last year. At least a third of this amount is contributed by interest costs and late payment charges on the actual unpaid bills of the power producers and fuel suppliers.”
This “mounting circular debt means Pakistan’s power sector is in a serious crisis, and no matter which government is at the helm, the problem will worsen. Multiple upward adjustments in electricity prices (like the one proposed for the next quarter) over the last several years have only complicated matters, and proved a disincentive for distribution companies to reduce their system losses, which are increasing on the back of poor infrastructure, theft and non-recoveries from private and government consumers. Almost half the circular debt build-up is said to have been caused by these distribution losses over and above Nepra’s allowed limit, and the failure to recover bills.”
However, as the Editorial warned “circular debt is as much a political challenge as it is a management problem. No governance reforms can succeed unless the ruling circles are prepared to pay the attached political costs.”