Amir Khan

The Ministry of Energy (MoE) has unveiled an ‘unprecedented’ circular debt settlement plan, amounting to Rs1,268 billion. Joint Secretary at the Ministry of Energy (Power Division), Laeeq Ahmed termed the plan as a unique, holistic and synergistic approach unlike the previous schemes. In an interview with WealthPK, he added that the overall circular debt in the energy sector stood at a staggering Rs5,725 billion, divided into power (Rs2,703bn, including Rs310bn late payment surcharges - LPS) and petroleum (Rs3,022bn, including Rs857bn LPS). “The distinguishing feature of this plan is its comprehensive approach, addressing circular debt at the sector level rather than separately for power and petroleum. Around Rs300 billion of circular debt balances overlap between the power and petroleum sectors, previously included in both divisions' reported balances,” Ahmed added.

He highlighted that the scheme's uniqueness lied in its sequential execution, starting with the central power purchaser (CPPA) settling with power generators (Gencos, GPPs), which, in turn, settle with gas distribution companies, ultimately reaching state-owned E&P companies (OGDCL, GHPL, PPL). “Positioned as budget-neutral, the plan aims for IMF approval, emphasising magnifying settlement amounts through technical supplementary grants.” The power division joint secretary explained that circular debt, a liability of the federal government, had surged at a compound annual growth rate of 22% over the past four years, and was projected to double in five years. He said that past settlements, such as the 2013 issuance of Rs82 billion Term Finance Certificates (TFCs) to OGDCL, have faced challenges, with the TFCs now accumulating to Rs264 billion in principal, interest and LPS. He said in straightforward terms, the government injects Rs745 billion in cash in the power sector and recovers Rs748 billion, maintaining fiscal deficit levels.

Besides, he said that the government also provides a budgeted technical supplementary grant (TSG) of Rs157 billion to the energy sector. “While procedural ambiguities in recognising injections exist, they do not negate the upcoming plan’s larger objective.” Ahmed maintained that the TSGs included allocations to OGDCL, PSO, GPPs, and Gencos, contributing to settling circular debt on their balance sheets. “Cash injections of Rs745 billion include payments to Sui companies and government-owned plants.” He said that through these injections the government wanted to curtail the circular debt, but the desired outcome was not achieved. “The upcoming plan targets LPS through negotiations, a practice not carried out by E&P companies to avoid tax implications. Procedural ambiguities, if any, are anticipated to be resolved collaboratively by the ministries of energy and finance, ensuring the IMF's alignment for the greater economic good.”

Credit: INP-WealthPk