Circular Debt in Energy Sector of Pakistan

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Circular Debt in Energy Sector of Pakistan

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Circular Debt in Energy Sector of Pakistan

  1. 1.  A owes 100 to B, B owes 100 to C C owes 100 to A
  2. 2.  Causes cash-flow shortfall in energy firms Increases borrowing from banks by energy companies to meet expenditures Power shortage in the country Reduced industrial activity due to power shortage Social effects due to extended load sheding for residential electricity consumers
  3. 3. Currency Exchange Crude O il Imp from Rs. To $ o rt Fu Im rna po c e rt O ilRevenueCollectionin Rs. Furnace Oil Supply Cash Flow Electricity Supply Furnace Oil Supply
  4. 4.  Govt. unable to pay power tariff subsidies to electricity distribution companies like PEPCO, KESC etc. Electricity distribution companies fail to collect bills from consumers Distribution companies default on payments to power producers like HUBCO, KAPCO etc. Power producers are not able to make payments for fuel oil purchases from oil companies like PSO Oil companies delay settling the payables to refineries
  5. 5. Amount Payable Receivable (Billion Rupees) PEPCO (Wapda) PSO 34 KAPCO PSO 17.32 HUBCO PSO 33.95 PIA PSO 1.32 PSO PARCO 25 PSO PRL 12 PSO NRL 8 PSO ARL 15 Govt. for Subsidy* PEPCO 43 Govt. for Subsidy* KESC 15All figures are of February 2010 and taken from a report published in Internetedition of Daily Times Newspaper on 31st March.* Subsidy for reduced electricity tariff
  6. 6.  Independence from Furnace Oil based electricity generation Linking of electricity prices with change in oil price (fuel adjustment) No Govt. subsidy on electricity and Oil Privatization of companies
  7. 7.  Govt. to float Rs 100 billion Bond in May 2010 to clear the mounted circular debts One-year maturity period Yield equal or slightly above 12.7 percent Funds generated from these bonds will be used by govt. to pay-off it’s liabilities which created the circular debt

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