By Muhammad Mudassar ISLAMABAD, April 18 (INP-WealthPK): Pakistan’s circular debt in the energy sector reached Rs2.6 trillion in March 2022 mainly because of capacity payments to the power-producing entities like independent power producers (IPPs) and Wapda, and volatility in fuel prices (oil and coal) on the international market. The supply chain of electricity distribution in Pakistan begins with petroleum companies, which sell their products to electricity-producing entities like IPPs and Wapda, which then sell electricity to government-owned distribution companies (Discos) that distribute electricity to homes, industries, etc., and bill them on a monthly basis. Due to line losses and low recovery of bills, the Discos are unable to pay the electricity-producing entities, who then are unable to pay the fuel companies. So, this vicious cycle causes the piling up of circular debt. Pakistan’s total installed capacity of electricity was 37,261MW in the fiscal year 2020-21, which was 4% (1,289MW) higher than the previous fiscal 2019-20. Electricity generation reached 102,742GWh in 2021. Pakistan's present energy mix consists of 12.2% indigenous gas, 26.5% hydel, 16.8% residual fuel oil (RFO), 19.7% RLNG, 6.7% nuclear, 4.4% renewables, and a minimum amount of imported electricity.

Source	Installed Capacity (MW)	Percentage share
Hydel	9,874	26.5
RLNG	7325	19.7
RFO	6,274	16.8
Coal	4,770	12.8
Gas	4,529	12.2
Nuclear	2,490	6.7
Wind	1,235	3.3
Solar	400	1.1
Bagasse	364	1
Total	37,261

Source: Ministry of Energy, (Power Division) The total consumption of electricity was 84,600GWh in 2021. As shown in the graph, the electricity consumption added additional 4,413 units GWh in FY21. [caption id="attachment_66127" align="aligncenter" width="696"] Pakistan Economic Survey 2020-21[/caption] Pakistan heavily relies on imported fuels, whose prices are volatile on the international market, for generating electricity. Pakistan’s power sector consumed 15.4% of the country’s total oil consumption in the first eight months of FY2021-22, according to Oil Companies Advisory Council. There is a need to take some corrective measures to tackle the issue of circular debt. One of the most important steps is to minimise the capacity payments by renegotiating terms with the power producing firms. Another possible solution to curtail the circular debt is to reduce tariffs in winter, when demand dips, and increase them in summer, when demand surges. Being an energy deficient country, Pakistan cannot afford the inefficiencies in the energy sector. According to Asian Development Bank, Pakistan can save 10 to 12 million tonnes of oil through energy conservation and energy efficiency. Energy is wasted through distribution, a lack of investment in implementing modern technology, and poor and aging infrastructure. Our natural gas reserves are being reduced by 9% a year. Due to the rapid increase in population and industry, there is an increasing gap between supply and demand. We cannot shift to imported LNG because of high prices. So, the government should promote and support renewable energy sources like biogas, solar, wind, etc. These are inexpensive and environment-friendly sources that can help the country cut back on its import bill.