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Circular Debt Why solving this issue is critical forthe future of the Energy Sector
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Simply defined, the chain of dues from Power Sector companiesto other companies in the Energy Sector.
Power companies unable to pay fuel costs essentially usingpayables to Fuel Suppliers as a source of working capital
But what is the ultimate source of this circular debt?
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Power sector inefficiency line losses, poor collection,electricity theft
Spiraling fuel costs, notadequately passed through intariffs
Non-payment by Governmententities
But the largest source: Non-payment of Tariff DifferentialClaims
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Circular Debt is a misnomer it isactually a Debt Spiral, withGovernment at its base
Non-payment of Tariff Differential Inability to pass rising costs on to
consumers Non-payment by government
owned entities Inability to enforce collection in
certain areas
Spiral Debt is being created largelydue to fiscal mismanagement andpoor policy
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Total power sector subsidyfor the current yearestimated at over PKR 300billion
Previous years debt stockestimated at a further PKR350 billion
Increasing at a rate of PKR100-150 billion per annum
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Power sector practically insolvent Insufficient investment, constant shortfalls Massive direct and indirect economic losses
No power, no industry, no growth
Constrains development of upstream resources
Ultimately, will lead to loss of grid electricity across the country
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Sustainable and long term solution is necessary Insolvent power sector will lead to economic collapse
Need a complete re-think ofeconomic priorities Fuel sources for power generation Electricity subsidies Priorities for supply of electricity
Bio - Gas plant Surplus coal reserves in Pakistan
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Must move toward an economically viable, long term fuel sourcefor generationFurnace Oil generation must end Long term solution has to be coalShort to medium term: Must allocate additional indigenous gas to
the power sector
Necessary to reduce immediate cost of generation and create somefinancial stability Should help to substantially reduce existing subsidies Necessary to ensure fiscal space for new coal initiatives
CCPP Coal Power Plant
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Sustainable only if: Combined with a detailed and effectively implemented plan for
efficiency improvements in DISCOs and GENCOsTariffs must account fully for LONG TERM COSTS OF SERVICE DISCOs must reduce line losses and improve collections
Require more detailed and better quality data Must implement and maintain new ERP/CRM/EDM platforms
across DISCOs and GENCOs
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Must develop indigenous coal resources as a critical national
priorityThe only viable and economic long term fuel source
Tariffs across the ENERGY sector must reflect costs of service andopportunity
Develop hydro resources where possibleMicro and mini-hydel as well as mega-dams
Off-grid alternative energy solutions for village electrification
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Thank You!
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