Circular Debt in Power Utilities and Strategies for Relief : A Case Study of Pakistan Power Sector

Abstract

The power sector is the mainstay of the nation’s economy and has a positive relationship with the growth or GDP of the country thereby affecting the economic and social prosperity of the citizens. Nations that are now considered developed were able to attain this position due to emphasis on energy and particularly the power sector. In the Pakistani context, the power sector did not evolve to newer power technologies. Lack of vision for future requirements, political interference, and inconsistency of policies have affected the Pakistani Power Sector. The introduction of circular debt in the power sector has complicated the matter. The effects of circular debt could be seen in the country in the form of power outages, downsizing of businesses, inflation, and unemployment. In addition, the circular debt in the power sector has created a parallel circular debt in the energy sector too particularly in the petroleum and gas sectors. For example, PSO is facing acute financial difficulties in the purchase of RFO that is used for power generation. The motive of this project is to suggest remedies to curtail the increase of circular debt such as the implementation of the CTBCM model without any further delay, and the privatization of DISCOs. In addition, this report also focused on the financial aspect that led us to the conclusion that inadequate cash inflow to DISCOs is one of the causes of mounting circular debt. One of the hallmarks of this project is that we were able to develop a model revealing the power sector's circular debt as the root cause of circular debt in the petroleum sector.