Circular debt occurs when one entity facing problems in its cash inflows holds back payments to its suppliers and creditors. EXAMPLE: circular debt could also explain by the example, three persons are indebted, in debted, Mr. Mr. A owes Rs 100 1 00 to Mr Mr.. B and Mr. B owes same amount to Mr. C and Mr. C owes Rs 100 to Mr. A. according to the current situation the net balance of all debts in between the three persons person s is zero.
ESE (DI (DIST STRIB RIBUTE UTER) R) K ESE PEPCO AND HUBCO ( POWER PRODUCER) PSO
(FUEL
SUPPLIER
TO
PEPCO
AND
HUBCO) Pakk-Ar Arab ab Re Refi fine nery ry Lt Ltd d (P (PAR ARCO CO)) Pa
This debt circle begins with the government as the
biggest debtor and ends with a government-owned enti en titty as th thee bi bigg gges estt cr cred edit itor or..
CIRCULAR DEBT REACHES 300 BILLION The circular debt of Pakistan has reached
approximately Rs 300 billion pushing the econ ono omy of the cou ount ntrry to de deva vast staation. The basic reason of the increase in the
circular debt is the countrywide theft of electricity nonpayment
including of
the power
trend
of
tariffs.
1) OUTSTANDING BILLS & PAYMENTS Man any y en enttit itie ies, s, var ario ious us pr priv ivat ate e an and d pu publ blic ic se sect cto ors ar are e defa de faul ultted to pa pay y hu hug ge el elec ecttri rici citty bi billlls s and ot othe herr pay ayme ment nts. s.
2) TARIFFS AND SUBSIDIES Governme men nt is unable to pay the power tariffs subsidie ies s to electricity elect ricity compani companies. es.
3) LIQUIDITY TRAP When pe When peo opl ple e ex expe pect cted ed rat ate e of re rettur urn n fr from om in inv ves esttme ment nts s in secu se curi riti ties es an and d ot othe herr as asse sets ts be beco come me lo low, w, in inve vest stme ment nts s go down. Circular debt increases due to lack of supply of money in the th e ma marke rket. t.
4)
IMP IM POR ORT T AND EX EXP POR ORT T (TRADE BALANCE)
Higher
amount of import leads the Federal reserves to be getting lo low w whic ich h furt fu rthe herr le lead ads s the go gov ver ernm nmen entt to take lo loan an from fr om IM IMF F (I (Int nter erna nati tion onal al Mo Mone neta tary ry Fu Fund nd)) and an d Wo Worrld Ba Bank nk..
5) GO GOVE VERN RNM MEN ENT T POL POLIICY
The
exporters are also not facilitating properly. There is no sustainable job to produce more electricity. Self consideration or Party consideration of the government.
CURRENT SITUATION OF CIRCULAR DEBT IN PAKISTAN
Total
capacity installed Pakistan has roughly 18,500 mega ward (MW). Around two-third (12,500 MW) is generated.
Around 6,500 MW of hydro-electricity can be available prov pr ovid ided ed th the e hy hydr droo-el elec ectr tric icit ity y ge gene nera rati ting ng un unit its. s.
Due to shortage of water in dams just one-third hydroelectr ele ctricit icity y gen genera erated ted now now..
Because of high cost of raw material the cost of electricity generated from Gas and Oil is also very much high.
Cont..
Shortage in Oil and gas units cannot generate elect ctrric power acc cco ord rdiing to the heiir ca capa pab bilility ty..
The
circular debt in power sector is reached Rs.664 Rs. 664.52 .52 bil billio lion. n.
S. NO.
STAKEHOLDERS
1.
PEPCO
Rs.299 billion
Rs.367 billion
2.
KESC
14.3 billion
Rs.32 billion
3.
PSO
Rs.133.541 billi lio on
Rs.139.1 .16 69 billion
4.
IPPs
Rs. 775.2 billion
Rs.516.7 billion
RECEIVABLES
PAYABLES
DECREASED
SOCIAL EFFECTS
INDUSTRIAL INCREASED PRICES
OPERATIONS
The most effected industry by circular debt is oil, petroleum, power and electricity generating companies. OGDCL Attock Refinery Limited (ARL (ARL)) PAK Arab Refinery Limited (Parco) Pakistan State Oil (PSO) Shell Sui Northern Gas Pipelines (SNGPL) arachi K arachi
Electric Supply Company (K ESC) ESC)
Hub Power Company ot Addu K ot
Powe Po werr Compa Company ny
Water and Power Po wer Developmen Devel opmentt Autho Authority rity (W ( WAPDA Hydel) Hydel) Pakistan Electric Power Company (PEPCO)
The total receivables of these companies are Rs775.2 bil b illi lion on an and d pa pay yab able less ar aree Rs Rs51 516. 6.7 7 bi bill llio ion. n.
Oil and Gas Development Limited (OGDCL) has the grea eattes estt shar aree of 115.5 billion out of 258.5 billion.
Parco
Rs 37.5 billion receivables
PPL
Rs 22.2 billi billion on receivabl receivables es
GHPL
Rs 9.6 billion receivables
SSGCL
Rs 7.1 billion receivables
SNGPL and K arachi arachi Water Board have 13.4 and 1.2 billion net payables respectively. respec tively.
MEASURES TAKEN BY THE GOVERNMENT The
Pakistan investment bonds and Treasury bilillls both, worth of Rs.195 billion has been issued by State Bank of Pakistan.
The
government has decided that Pakistan would have to pay off $1.2 billion to the IMF in the third and fourth qua uart rter er of the on ongo goin ing g fi fina nanc ncia iall yea ear. r.
The
government is als lso o thinking to privatize the Paki kis stan Railways.
From many of the defaulted private consumers, the PEPCO is being persuaded to recover its dues as soon as po poss ssib ible le..
On el ele ect ctri rici citty billlls, s, a spe pec cial su surc rcha harg rge e fr fro om con ons sumer ers s is cons co nsid ider erin ing g to be im impo pose sed d by the go gov ver ernm nmen entt.
Raising the TaxtoGDP ratio is a key pillar of the government¶s economic strategy. In addition, other measures such as improving i mproving tax administration and reinstating tax audits have been taken. Restructure key Public Sector Enterprises (PIA, PEPCO, Railways, TCP, USC, Pakistan Steel Mills, and N H A) to stop leakages caused by annual losses amounting to approximately 1.5% of GDP. The eventual aim is to turnaround these PSEs into profitable, self sustaining ventures under PublicPrivate Partnership mode. Under reform of the power sector, electricity tariffs a full costrecovery tariff for the power utilities. Under a new Act of parliament, adjustment in tariff for changes in fuel prices for power generation has been made automatic. Checking inflation. Bringing people to the centre stage, by appropriately designed employment and training programs.
