Pakistan attributes $8.9 bln circular debt, inflated bills to ‘poor governance’ in distribution firms

A youth walks on a wall while searching for drinking water in Rawalpindi on July 8, 2020. (AFP/File)
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Updated 03 February 2024

Pakistan attributes $8.9 bln circular debt, inflated bills to ‘poor governance’ in distribution firms

  • NEPRA says governance issues significantly contributed to circular debt, with no signs of reduction
  • The power regulator calls for structural overhaul of distribution companies, end of cross-subsidies

KARACHI: Pakistan’s National Electric Power Regulatory Authority (NEPRA) has blamed the surging circular debt, which has ballooned to approximately Rs2.3 trillion ($8.9 billion), and inflated electricity bills on “poor governance” within power distribution companies (DISCOs).

Pakistan’s power sector has been grappling with several challenges, including the growing circular debt, increasing cost of electricity, inefficiencies in the generation, transmission, distribution and supply segments, fuel supply issues, under-utilization of efficient plants, and governance and compliance.

Governance issues have significantly contributed to the mounting circular debt, which has now reached a staggering Rs2.3 trillion, as of June 2023, showing no signs of reduction, according to a NEPRA annual report released on Friday. The primary issues facing 10 DISCOs in the country include low bill recovery and high losses due to theft.

The power sector faced these persistent challenges as DISCOs stood at a critical juncture and struggled with the pervasive issue of old infrastructure, coupled with “poor governance,” the regulator said in its 2022-23 report.

“The mounting receivables of the DISCOs have been a major concern highlighted by the Authority over the past several years, receivables for DISCOs surged to approximately Rs 1,727,104 million ($6 billion), compared to Rs1,530,500 million ($5.3 billion) in FY 2021- 22, indicating an increase of Rs196,605 million,” the NEPRA report read.

“It is believed that DISCOs’ performance can significantly improve with the involvement of private sector. Therefore, concerted efforts are required in this direction.”

In Pakistan, the government administers the effective uniform tariff that companies charge their consumers and compensates the DISCOs for the difference, commonly known as Tariff Differential Subsidy (TDS).

Companies with lower regulated tariffs than the notified ones are not permitted to pass on the benefits of the lower tariff to their consumers. Instead, they levy a Tariff Rationalizing Surcharge (TRS) on their consumers to align it. Consequently, consumers of relatively efficient DISCOs subsidize those of less efficient DISCOs.

“The practice of cross-subsidization, where consumers of efficient DISCOs bear the financial burden of underperforming counterparts, inadvertently undermines efficiency and unintentionally fosters inefficiencies,” NEPRA said, recommending “urgent rectification” of the practice which it said must be discouraged.

The lack of oversight and accountability mechanisms within DISCOs led to mismanagement and corruption, further eroding the sector’s efficiency, viability and credibility.

“The performance-based robust human resource system is required to be developed and deployed in DISCOs to improve their performance,” the report read.

The authority stressed that “poor governance in DISCOs” needed to be curbed imperatively for sustained growth and financial viability of Pakistan’s power sector.

“Effective implementation of regulatory frameworks and robust oversight is crucial to improve governance in DISCOs,” it said. “Investment in human resource development and encouraging a culture of accountability can be instrumental to bring a positive shift in the performance of these companies.”

By tackling the governance issues, NEPRA said, Pakistan could pave the way for an efficient, transparent, and consumer-centric electric power sector, ultimately benefiting both the industry and the citizens alike.

High cost of electricity in Pakistan has emerged as a critical challenge affecting all segments of the society, ranging from domestic consumers to industrial and agricultural sectors.

Amid historically high inflation in the country, the extra ordinary increase in the price of electricity had badly disrupted life of an ordinary man, NEPRA acknowledged.

This price escalation emanated primarily due to increase in the prices of essential primary energy resources such as coal, oil and gas in the international market and drastic devaluation of Pakistani currency, which intensified financial strain on the power sector and consumers.

During the fiscal year 2022-23, thermal generation, including imported fuels, accounted for around 62 percent of the total generation capacity. Generation cost, around 83 percent, was the predominant factor, affecting per unit electricity price. Even a minor change in generation cost impacted the overall consumer-end tariff, according to the report.

A significant contributor to high electricity costs was the operation of old, less efficient plants in both public and private sectors. Many public sector plants, built in the early 1980s, exhibit efficiency as low as around 30 percent or lesser, and have become economically unviable and therefore need to be retired immediately.

Pakistani families urge President Raisi to release cargo crew detained in Iran as he visits Karachi

Updated 6 sec ago

Pakistani families urge President Raisi to release cargo crew detained in Iran as he visits Karachi

  • Jalal Ahmed, the cargo boat captain, was on his way from Dubai to Somalia when he was caught by Iran four years ago
  • The families of detained Pakistanis say they have not been informed of the charges against Ahmed, others on the boat

KARACHI: Families of Pakistani crew members aboard a cargo boat, which set sail from Dubai to Somalia but was detained by Iran four years ago, appealed to Iranian President Ebrahim Raisi on Tuesday for their release, citing a lack of cooperation from Iranian authorities.
Raisi, who arrived in Pakistan on Monday for a three-day visit, flew to Karachi today after a brief stopover in Lahore. During his stay in Karachi, the Iranian president is slated to meet with government officials and businessmen.
The family of Jalal Ahmed, the captain of the cargo boat, along with others, staged a demonstration in front of the Karachi Press Club to highlight the difficulties they have faced in securing the release of their loved ones, who have been incarcerated in Iran’s Minab city for the past four years.
“We have come here because my brother is imprisoned in the city of Minab in Iran,” Gul Saba, Ahmed’s sister, told Arab News while urging Pakistan’s President Asif Ali Zardari and Prime Minister Shahbaz Sharif to intervene in the matter to secure the release of the detained crew members.
“We also appeal to Iran’s President Ebrahim Raisi to release our brother and the other ten [people] who accompanied him,” she continued.
Saba added her 45-year-old brother, who has three children, was transporting cargo from Dubai to Somalia when his ship was stopped by the Iranian authorities.
She said her family members had traveled to Iran, but there had been no response from Iranian authorities.
“No statement has come [from Iranian officials] regarding why [the Pakistani crew members] have been imprisoned,” she added. “There may be no crime involved as their cargo ship was legal.”
Arab News could not independently verify the claims made by the affected family.
Jawad Jalal, Ahmed’s 10-year-old son, also participated in the protest along with his mother, Sadia Ahmed, and aunt Saba.
“When I was six, my father was imprisoned in Iran,” he said while reminiscing how Ahmed escorted him to school before being detained.
“He should be released so he can drop me off at school once again,” he continued, holding a placard emblazoned with the demand for his father’s release from Iranian prison.

Pakistan says will reconstitute panel on ‘enforced disappearances’ after US report points out rights abuses

Updated 22 min 42 sec ago

Pakistan says will reconstitute panel on ‘enforced disappearances’ after US report points out rights abuses

  • Pakistan has long been plagued by disappearances of political workers, rights activists and professionals
  • Families say people picked up by security forces often disappear for years, security agencies deny involvement

ISLAMABAD: Pakistan will be reconstituting a committee to address the longstanding issue of “enforced disappearances,” Law Minister Azam Nazeer Tarar said on Tuesday, hours after the release of a US report highlighting rights abuses in the South Asian country.

Over the years, hundreds of political workers, rights activists and professionals have gone missing in Pakistan, particularly in the northwestern Khyber Pakhtunkhwa and the southwestern Balochistan provinces, where militants have waged a war against the state for decades.

Families say people picked up by security forces often disappear for years, and are sometimes found dead, with no official explanation. Pakistani security agencies deny involvement in such disappearances.

Speaking at a press conference in Islamabad, Tarar noted the former Pakistan Democratic Movement (PDM) government had formed a committee on the issue with the representation of all stakeholders.

“Now the work is being initiated on this again on the directives of the prime minister. A committee is going to be reconstituted, there will be parliamentary presence in that committee,” he said. “There is no lack of seriousness on the government’s part to resolve this issue.”

The minister said they visited the Quetta, the capital of Balochistan province, met with stakeholders there as well as reviewed reports on the matter from the tenure of the caretaker government.

Tarar said 10,200 cases of “missing persons” had been registered in the Commission of Inquiry on Enforced Disappearances (CIoED), out of which around 8,000 cases had been addressed.

He, however, said the issued could not be resolved “overnight,” adding that there had been no “concrete evidence” of the involvement of state agencies in these cases.

The law minister’s comments came hours after a report released by the US State Department said Pakistan’s government “rarely” took steps to identify and punish officials who may have been involved in rights abuses in 2023, pointing out incidents of extrajudicial killings, torture, enforced disappearances, violence against journalists and restrictions on media freedom.

“The government rarely took credible steps to identify and punish officials who may have committed human rights abuses,” the State Department said, pointing out Pakistan last year had seen incidents of restrictions on freedom of expression and media, violence against journalists, unjustified arrests, disappearances of journalists, censorship and criminal defamation laws.

Pakistan’s actions in recent months to restrict Internet and mobile services throughout the country, especially on days when elections are held, have invited criticism from rights organizations and Washington.

The interior ministry last week confirmed it had banned social media platform X in February to protect national security, maintain public order, and preserve the country’s “integrity.”

The South Asian country has seen an uptick in violence, mainly suicide attacks, since November 2022 when a fragile truce between militants and the state broke down.

Pakistan has since then carried out military operations against the Pakistani Taliban or the Tehreek-e-Taliban Pakistan (TTP) and a Baloch separatist militant organization, the Balochistan Liberation Army (BLA) in the country’s two western provinces that border Afghanistan.

Saudi Arabia to invest $5 billion to boost Pakistan’s economy – planning minister

Updated 23 April 2024

Saudi Arabia to invest $5 billion to boost Pakistan’s economy – planning minister

  • Ahsan Iqbal says the national economy can reach a $3 trillion mark by 2047 with 9% growth rate
  • He informs a summit the government plans to maximize investment from UAE, Kuwait and Qatar

KARACHI: Federal Minister for Planning and Development Ahsan Iqbal announced on Tuesday Saudi Arabia was expected to invest $5 billion in Pakistan, adding the administration in Islamabad was also trying to secure investment from other Gulf states to strengthen the national economy.

Amid economic challenges, Pakistan has been actively trying to attract foreign investment and established the Special Investment Facilitation Council (SIFC), a civil-military hybrid body, last year for the purpose.

The SIFC was created to serve as a single window for all foreign investment activities, offering a simplified and more direct route for international investors interested in various sectors such as mining, agriculture, energy, information technology and defense manufacturing.

The body was tasked to address procedural bottlenecks, accelerate policy reforms and create a more favorable investment climate, with a special focus on Gulf economies.

“Saudi Arabia will soon invest $5 billion in Pakistan and in this regard, Prime Minister Shehbaz Sharif will soon visit Saudi Arabia, followed by an expected visit of the Saudi Crown Prince Mohammed bin Salman to Pakistan,” the Planning Commission of Pakistan quoted the minister as saying in an official statement.

Iqbal issued the statement while speaking at a business summit in Islamabad.

He mentioned that discussions were ongoing with the United Arab Emirates, Kuwait and Qatar to maximize investment in Pakistan.

The planning minister said if Pakistan managed to increase its exports to $100 billion in the next seven to eight years, it would achieve a significant economic takeoff.

He maintained that Pakistan could become a $2 trillion economy by 2047 with 7 percent growth, adding it could also reach a $3 trillion mark by maintaining 9 percent growth.

Pakistan, Saudi Arabia and Uzbekistan ink ‘landmark’ agreement to promote trade, investment

Updated 23 April 2024

Pakistan, Saudi Arabia and Uzbekistan ink ‘landmark’ agreement to promote trade, investment

  • As per agreement, Uzbekistan’s largest bank and a Pakistani firm will support investors in all three countries
  • Partnership to attract foreign investment particularly in key sectors of energy, infrastructure and agriculture

ISLAMABAD: Pakistan, Saudi Arabia and Uzbekistan have signed a “landmark” partnership agreement to boost economic cooperation and create new opportunities for investors in the region, Pakistan’s state-run television reported on Tuesday.

As per the terms of the agreement, Uzbekistan’s largest bank Ansher Capital will work closely with KASB Securities Limited (KASB), a leading Pakistani stock and commodity brokerage firm, to provide financial advisory and corporate finance services to investors in all three countries, the state media said. 

Both firms will support investors and traders in Pakistan, Uzbekistan and Saudi Arabia by providing expert guidance on navigating financial markets, the Pakistan Television (PTV) said. 

“In a significant development, Uzbekistan, Pakistan, and Saudi Arabia have signed a landmark partnership agreement aimed at promoting investment and trade between the three countries,” PTV said. 

“The partnership is expected to expand the market and attract foreign investment, particularly in key sectors such as energy, infrastructure, and agriculture.”

The report said that the agreement is also expected to strengthen trade ties between the three countries, with a focus on increasing trade volumes and promoting economic integration. 

“The partnership will enable businesses to tap into new markets and access new investment opportunities, creating jobs and driving economic growth,” PTV said.

Pakistan and Saudi Arabia enjoy strong trade, defense and cultural ties. The Kingdom is home to over 2.7 million Pakistani expatriates and serves as the top destination for remittances to the cash-strapped South Asian country.

Saudi Foreign Minister Prince Faisal bin Farhan arrived in Pakistan last week for a two-day visit aimed at strengthening bilateral economic cooperation and pushing forward previously agreed investment deals. Pakistan has said it pitched investment projects worth $30 billion to Riyadh during Prince Faisal’s visit.

Islamabad has sought trade and economic partnerships with bilateral partners and allies as it seeks to navigate a macroeconomic crisis that has seen its reserves plummet to historic lows and its currency weaken significantly. 

Pakistan’s finance minister says new IMF loan agreement targeted for early July

Updated 23 April 2024

Pakistan’s finance minister says new IMF loan agreement targeted for early July

  • The quantum and duration of new loan is still not clear, though the government wants at least a three-year program
  • Muhammad Aurangzeb says the modalities of the new loan will be thrashed out with an IMF delegation next month

ISLAMABAD: Pakistan’s finance minister Muhammad Aurangzeb said on Tuesday the country planned to discuss the contours of a new loan program with an International Monetary Fund (IMF) delegation next month while hoping to reach a staff-level agreement with the global lender by early July.

Pakistan secured a $3 billion IMF bailout last year to avert a sovereign default and hopes to receive the final tranche later this month. However, the government wants a fresh IMF loan since the country continues to face tough economic challenges and plans to implement structural reforms.

“We are still hoping that we can get into a staff-level agreement by the time June is done or early July so that we can move on,” the finance minister said while addressing a news conference.

He informed he had good discussions with IMF and World Bank officials during the spring meetings held by both international lending organizations in Washington.

Aurangzeb maintained it was not right to say that the IMF was imposing strict conditions on Pakistan since the country needed to carry out reforms on its own to strengthen its economy.

“This is Pakistan’s program which is helped, supported, assisted by the fund,” he said. “This is how we have to see it since this is the way ownership will come.”

He maintained the country’s foreign reserves were increasing and would reach about $10 billion by the end of June this year well before the new IMF program.

“Once the final tranche comes from the IMF, end of this week, we will be over $9 billion,” he told the media. “By the time we end June, we will be anywhere between $9-10 billion, which is going to be equivalent to two months of import cover.”

The finance minister noted the country had made progress since its foreign reserves dipped to nearly $3.4 billion last year.

He said the stock market was also hitting all-time highs and foreign buyers were entering the market.

“The gross domestic product growth is expected to be at 2.6 percent in the current fiscal year,” he said, adding the government was taking steps to attract foreign investment and keep the current account and fiscal deficits within reasonable limits.

“The current account deficit has been reduced to $1 billion after a 74 percent reduction in FY24,” the minister said, adding the inflation was expected to remain at 24 percent during the ongoing fiscal year, while the trade deficit had been reduced to $17 billion following a 24.9 percent decrease.

He said the quantum and duration of the new IMF program was yet not clear, though the government wanted to secure at least a three-year loan package.

Pakistan and IMF have said they are already in discussions for the new loan.

Aurangzeb said structural reforms carried out by the government include increasing the government’s tax revenue-to-GDP ratio to 13 percent to 14 percent in next two or three years from the current level of around 9 percent, reducing losses of state-owned enterprises through their privatization, and better management of the debt-laden energy sector.

With input from Reuters