Circular Debt Why solving this issue is critical for the future of the Energy Sector

Simply defined, the chain of dues from Power Sector companies to other companies in the Energy Sector. Power companies unable to pay fuel costs essentially using payables to Fuel Suppliers as a source of working capital But what is the ultimate source of this circular debt?

 Power sector inefficiency line losses, poor collection, electricity theft Spiraling fuel costs, not adequately passed through in tariffs Non-payment by Government entities But the largest source: Nonpayment of Tariff Differential Claims

Circular Debt is a misnomer it is

actually a Debt Spiral, with Government at its base

Non-payment of Tariff Differential

Inability to pass rising costs on to consumers Non-payment by government owned entities Inability to enforce collection in certain areas

Spiral Debt is being created largely due to fiscal mismanagement and poor policy

 Total power sector subsidy for the current year estimated at over PKR 300 billion Previous years debt stock estimated at a further PKR 350 billion Increasing at a rate of PKR 100-150 billion per annum

 Power sector practically insolvent

Insufficient investment, constant shortfalls Massive direct and indirect economic losses

No power, no industry, no growth Constrains development of upstream resources Ultimately, will lead to loss of grid electricity across the country

 Sustainable and long term solution is necessary

Insolvent power sector will lead to economic collapse

Need a complete re-think of economic priorities

Fuel sources for power generation Electricity subsidies Priorities for supply of electricity

Bio - Gas plant

Surplus coal reserves in Pakistan

 Must move toward an economically viable, long term fuel source for generation
Furnace Oil generation must end Long term solution has to be coal Short to medium term: Must allocate additional indigenous gas to the power sector

Necessary to reduce immediate cost of generation and create some financial stability Should help to substantially reduce existing subsidies Necessary to ensure fiscal space for new coal initiatives

CCPP

Coal Power Plant

 Sustainable only if:

Combined

with a detailed and effectively implemented plan for efficiency improvements in DISCOs and GENCOs Tariffs must account fully for LONG TERM COSTS OF SERVICE

DISCOs must reduce line losses and improve collections

Require more detailed and better quality data

Must implement and maintain new ERP/CRM/EDM platforms across DISCOs and GENCOs

 Must develop indigenous coal resources as a critical national priority

The only viable and economic long term fuel source

Tariffs across the ENERGY sector must reflect costs of service and opportunity Develop hydro resources where possible
Micro and mini-hydel as well as mega-dams

Off-grid alternative energy solutions for village electrification

Thank You!