Finance Ministry resists disbursement of subsidy, despite soaring circular debt

The Ministry of Finance has been claimed to be blocking subsidy payment to energy producers which is a major factor in the soaring circular debt and continued load-shedding, media sources have reported.

The Ministry of Water and Power has escalated the issue to the Prime Minister Nawaz Sharif and urged his intervention as FY 2016-17  wraps up.

The finance ministry is reported to have dispensed Rs104b so far which is Rs14b less than the total subsidy allocation of Rs118b for power consumers in the current fiscal year.

State-run oil marketing giant Pakistan State Oil (PSO) faced with a liquidity crunch, is persistently asserting that the company is heading towards a major financial collapse in the wake of delayed payments by power producers. The company also fears a breakdown of the oil supply chain.

Addressing a high-level meeting chaired by the prime minister (PM) on energy challenges, Water and Power Secretary Naseem Khokhar said that the total subsidy allocation in the FY2016-17 was Rs118b in comparison to Rs676b in the FY2012-13. This led to Azad Jammu and Kashmir, K-Electric, industries and Fata being denied of subsidy payments.

Khokhar urged the PM to direct the finance ministry to release the subsidy on an urgent basis to provide relief from the liquidity crunch.

Instead of addressing the impending problem, the Finance Division secretary backed a proposal of burdening honest consumers with Rs82b in order to cover the cost of electricity theft.

The finance secretary was of the opinion that the issue of circular debt could be addressed by resolving structural issues in collaboration with the regulator, Nepra.

He pointed out that Nepra determined tariff determination based on the assumption that there would be 100pc recovery of bills by the distribution companies and the average line losses would be 15.3pc. As opposed to this, actual recoveries were 88-90pc and line losses stood at around 19pc. The water and power secretary was of the similar opinion.

However, he pointed out that distribution companies in 2015 and 2016 made recoveries of over 93pc and line losses were also reduced to 16.30pc. This was supplemented by cheaper oil prices which led to a restriction in the advancement of the circular debt. Without these systematic improvements, the circular debt would have been skyrocketing to the tunes of Rs684b, he remarked.

He asked the prime minister to issue policy directives to the regulator for quarterly tariff adjustment in line with the actual line losses and recoveries, which would help bringing down the subsidy bill by Rs82b.

It was concluded that the Ministry of Water and Power would reach out to the regulator in the matter.The PM also advised the finance ministry to ensure immediate release of unpaid subsidy in order to relieve the issue of liquidity crunch in the energy chain.


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