Constantly pointing out the shortcomings of Pakistan’s energy sector may seem repetitive, but the scale of the challenges it faces keeps it in the headlines. In early November, the Government of Pakistan announced its Circular Debt Management Plan (CDMP) for the energy sector. Although the expected growth in debt obligations is only 1.5%, outstanding liabilities have already reached 2.4 trillion rupees, and these projections are based on some generous assumptions that deserve close examination. The question remains: Are we heading towards doom, or does hope still shine in the corridor of power in Pakistan?
Crisis making
Pakistan’s energy sector suffers from a persistent circular debt problem rooted in a complex web of unpaid liabilities which has become increasingly complex over the years. At its core are the unfunded outstanding liabilities of the power distribution companies and K-Electric towards the Central Power Procurement Authority (CPPA-G) guarantee, a situation that is becoming more serious with each passing year.
When disco companies fail to pay their dues to the CPPA-G, it creates a cash shortfall, forcing Power Holding Private Limited (PHPL) to borrow money to cover the CPPA-G’s liabilities. This cycle of late payments represents the country’s accumulated circular debt.
The growth of this circular debt can be attributed to five fundamental factors that have created a perfect storm in Pakistan’s energy sector. High power generation costs have significantly undermined the ability of power distribution companies to collect revenues and manage their operations effectively, creating a persistent gap between costs and collections.
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