Tariff Increases Fail to stop the Growing Circular Debt

Web DeskOctober 3, 2023

Despite repeated monthly, quarterly, and annual tariff increases, the circular debt within the power sector continues to swell. This growth is a result of the government’s strategic decision to include capacity charges payable to power producers in consumer tariffs.

The situation came to light when the National Electric Power Regulatory Authority (Nepra) announced an additional flat rate of Rs3.2814 per unit for quarterly tariff adjustments (QTAs) in electricity bills across all consumer categories and companies (excluding lifeline consumers), including K-Electric. This adjustment will be in effect for the next six months, from October to March 2024, with an overall revenue impact exceeding Rs200 billion, which includes Rs136 billion in additional cash flows to 10 former Wapda distribution companies (Discos), along with an 18% Goods and Services Tax (GST).

Read more:Circular Debt Soars Over Rs2 Trillion Despite Significant Tariff Hikes

Concurrently, the Power Division quietly published the National Electric Plan (NEP) 2023-27 on its website, which was approved by the PDM-led coalition government on August 8. This plan outlines a strategy for the partial recovery of capacity charges payable to Independent Power Producers (IPPs) through fixed charges, affecting all consumers except those classified as very poor.

In contrast, the Power Division also released a circular debt report on its website for the period ending June 30, revealing total payables to IPPs amounting to Rs1.434 trillion and a total circular debt of Rs2.31 trillion. This report, published after a gap of approximately three months, indicated an increase of Rs83 billion in payables to IPPs and a rise of Rs57 billion in the total circular debt in FY23 when compared to the previous fiscal year. Additionally, payables to public sector generation companies increased by Rs10 billion, reaching Rs111 billion.

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