ECC undecided on how to tackle circular debt

VIAShahbaz Rana
SOURCEThe Express Tribune
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ISLAMABAD: Members of the Economic Coordination Committee (ECC) on Monday failed to evolve a mechanism to deal with the recurring circular debt, currently amounting to nearly Rs600 billion ahead of another spike in electricity prices that are set to rise by 33 per cent, likely to deepen the sector’s woes.

The ECC was informed by the National Electric Power Regulatory Authority (NEPRA) that electricity tariffs could go up by as much as Rs15 per unit, forcing the new PTI government to review the previous policy of giving subsidy on electricity to industrial units.

During the second meeting within a week, the ECC was unable to build a consensus on mechanism for giving subsidies because of the high cost of Industrial Support Package (ISP) and higher future power tariffs.


Officials maintained that there was no headway in resolving the dispute over sales tax treatment of subsidy being extended to consumers of electricity in tribal areas.

ECC takes it slow, puts off decision on gas price hike

But the Ministry of Finance was willing to share the cost of subsidy on agricultural tube-wells in Balochistan till the introduction of solar power plants. The new budget sets aside as much as Rs5 billion for installing tube-wells in Balochistan.

The ministry also offered to pick up 40 per cent of outstanding circular debt against the Azad Kashmir government, adjusting the remaining 60 per cent against loans given to power distribution companies against their equity.

While the ECC understood the complexity of the issue, the ministries concerned were not fully prepared.

READ MORE: ECC decisions

The cabinet committee was also given a presentation by the Auditor-General of Pakistan on the status of audit objections against Rs480 billion circular debt payments settled by the PML-N government within three weeks of forming the government in 2013.

It directed the AGP to conduct an audit of four loss-making power distribution companies within a month.

Officials of the AGP department informed the ECC that Rs480 billion had been paid by relaxing rules and without reconciliation.

The Senate had already referred this matter to the National Accountability Bureau for an investigation.

NEPRA officials also gave a detailed presentation on determination of tariffs, indicating that the next tariff adjustment could be as high as Rs15 per unit to offset the higher cost of power generation and capacity payments.

The sources said that higher future power tariffs were one of the concerns for picking up the cost of the Industrial Support Package that had been extended by the previous PML-N government for more three years. There was a proposal to limit the industrial subsidy to export-oriented industries, but this could raise issues with World Trade Organization (WTO).

Sources said that the annual cost of the support package was Rs60 billion at current tariffs and the Finance Ministry offered to pick half its cost.

It said that the remaining Rs30 billion could be adjusted against loans given to power sector companies five years ago.

An official handout of the Finance Ministry stated that ECC was given a presentation on circular debt that accumulated over time to a staggering R1.188 trillion.

As much as Rs596 billion is still outstanding while Rs582 billion was parked with the Power Holding Company.

“The ECC observed that the (previous) PML-N government had taken the decision to discontinue the provision of subsidized power supply to Azad Kashmir in budget 2018 and (it) had also decided to discontinue the industrial Support Package,” the official handout stated.

The Committee had decided to bring these facts to the attention of the federal cabinet, it said.

On the issue of recoveries, it had been decided to disconnect meters of all individuals, departments and ministries or private entities who consecutively failed to pay bills for three months, said the Finance Ministry.

When they cleared their dues, prepaid meters would be installed.

Chairman ECC Asad Umar directed the Power Division to take strict legal action against officials and individual involved in power theft.

Fertilizer subsidy

The Finance Ministry stated that the ECC had decided to cope with the shortage of urea fertilizer.

The ECC decided that three non-functional urea manufacturing plants would be supplied RLNG for a four-month period with 50 per cent cost of RLNG being borne by the government while the balance would be shouldered by these respective manufacturing units.

These plants would utilize their full potential and the decision to import fertilizer would be taken after taking into account of their production capacity.

ECC expected to approve Rs60 billion bailout for PSO

The ECC directed the Ministry of Industries and Production to work out actual urea production and consumption figures for the 2017-18 period and estimates for 2018-19. In case of any shortfall in urea consumption, the report should also identify reasons for it.

The ECC also decided to work out the windfall gains reaped by the fertilizer industry, in light of the net Variable Contribution Margins, as a result of charging higher rates as well as exports during 2017-18 and 2018-19. The windfall gains may be adjusted against outstanding subsidy in favour of the fertilizer industry, under fertilizer subsidy schemes in vogue during the preceding three financial years.

Railway subsidy

The ECC advised the Ministry of Railways to set up a pension fund to deal with annual pension payments of Rs31 billion. Currently, the pensions are being paid by the federal government.

(This news/article originally appeared in The Express Tribune on September 4th, 2018)

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