Issue of circular bebt

1. WHY ISSUE OF CIRCULAR DEBT IN
PAKISTAN REMAINS UNRESOLVED?
ANJUM ZAHRA

2. CIRCULAR DEBT
Circular Debt occurs when one entity facing problems in its
cash inflows holds back payments to its suppliers and
creditors. Thus problem in the cash inflow of one entity
cascade down to other segments of the payment chain.

3. KEY PLAYERS IN ENERGY SECTOR
 Suppliers of Primary Energy
 Power Generation and Distribution Companies
 Power Consumers

4. EMERGENCE OF CIRCULAR DEBT
From November 2003 to February 2007, tariffs remained
unchanged.
End consumer tariffs remained insufficient to recover the
rising cost of power generation and the government was
not fully compensating PEPCO for the resulting losses due
to fiscal constraints.

5. EMERGENCE OF CIRCULAR DEBT
PEPCO started borrowing from banks against government
guarantees
After February 2007, upward revision of tariffs was
allowed by NEPRA but government notified tariffs
remained lower than determined by NEPRA.

6. PAST AND PRESENT
YEAR AMOUNT
2013 503 Billion
2014 244 Billion
2015 321 Billion
2016 352 Billion
2017 472 Billion
2018 1.14 Trillion
2019 1.4 Trillion

7. EFFECTS OF CIRCULAR DEBT
Causes cashflow short fall 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 shedding for residential
electricity consumers

8. REASONS FOR NON RESOLUTION
Outstanding bills and payments
Poor revenue collection
Transmission and distribution constraints
Government subsidies

9. REASONS FOR NON RESOLUTION
Delay in tariff determination and imposition by NEPRA (Fuel
price adjustments)
Power theft and wastages
Compounding of interest on delayed payments and high rates
of interest

10. REASONS FOR NON RESOLUTION
Incomplete policies and timid reforms
Neglect of renewable energy and reform programmes
Strengthening and re-structuring of NEPRA
Absence of sense of energy conservation and demand-side
management

11. Q & A

12. THANKS