Energy sector circular debt reaches Rs4.7tr

ISLAMABAD: Pakistan’s energy sector is grappling with a formidable challenge as the circular debt has skyrocketed to a staggering Rs4.7 trillion, with capacity payments to Independent Power Producers (IPPs) hitting Rs2 trillion, Caretaker Energy Minister Muhammad Ali revealed during a media briefing here on Tuesday.

The minister said that the primary circular debt in the petroleum sector had surged to Rs2.3 trillion as of December 2023, while in the power sector, it had reached Rs2.4 trillion by November 2023’s conclusion. However, he assured that recent measures implemented by the interim government had effectively curbed further accumulation of circular debt.

Notably, when interest is included, the circular debt in the petroleum sector alone rises to Rs3.022 trillion. Consequently, the total circular debt in the energy sector (both petroleum and power) stands at Rs5.422 trillion.

Responding to queries, Minister Ali said that the overdue amount owed to Chinese IPPs totals approximately Rs511 billion. He said that the debt in the power sector has been contained within the International Monetary Fund (IMF) target of Rs385 billion by the end of December 2023, leading to the settlement of 35 percent of petroleum and 10 percent of the power sector circular debt.

A nationwide anti-theft campaign in all power distribution companies (Discos) launched in August 2023 has resulted in a two percent increase in recovery, amounting to Rs54.6 billion as of January 31, 2024. The total impact, as per the minister’s claim, amounts to Rs67.4 billion, with line losses decreasing and benefiting Rs12.8 billion due to the campaign.

Regarding capacity payments, a Power Division official disclosed that out of the total energy cost of Rs3.2 trillion, approximately Rs2 trillion accounts for capacity payments to IPPs.

About the privatisation of state-owned Discos, the minister said that the cabinet approval had been secured for private sector participation in the operations of two Discos (Hesco and Gepco) through long-term concession agreements, eventually leading to their privatisation. He clarified that the process did not involve the sale of government assets, citing successful precedents in countries like Turkey, Argentina, Brazil and Uganda.

Minister Ali also highlighted the completion of approximately 700 kilometers of optical fiber installation on transmission lines as part of the SCADA-III project by the National Transmission and Dispatch Company (NTDC). He added that the interim government had approved work on an 80-kilometer segment of the Iran-Pakistan (IP) Gas Pipeline project. Addressing concerns about US sanctions on the project, he stated that they were only constructing the portion of pipeline and the gas supply will take time. It is expected to take one and a half years to complete. Connecting it to the Iranian side for gas supply will require additional time, he added.

The minister also warned that if a significant investment in indigenous energy resources and energy efficiency measures was not made, the nation could potentially incur a staggering annual expenditure of $60 billion on importing petroleum products by the year 2044. This projection marks a significant leap from the current $17.5 billion expenditure in the fiscal year 2023.

On new gas connections, a Petroleum Division official said that the SNGPL had been allowed to give new imported LNG-based gas connections to housing societies. Around 15,000 new connections will be provided to around 400 housing societies, he added. There are three million applications for new gas connections pending with the SNGPL, the official further said.

In efforts to address the challenge, the minister said the caretaker government introduced the Tight Gas (Exploration & Production) Policy 2024, focusing on an innovative pricing strategy to encourage efforts in exploring and producing unconventional hydrocarbon reserves.

The Petroleum Division official said that efforts to revive dormant oil wells and reignite dormant discoveries have become vital strategies, with recent advancements emphasising this approach. Notable achievements include the injection of 152 million cubic feet per day (mmcfd) of gas, the drilling of 22 wells and the revelation of six new oil and gas findings.

Furthermore, on January 24, 2024, the government executed Petroleum Concession Agreements (PCAs) and Exploration Licences (ELs) for eight oil and gas blocks.

The Cabinet Committee on Energy (CCoE) recently approved additional enhancements to the current brownfield refining policy, aimed at encouraging local refineries to undertake upgrading projects. In efforts to bolster domestic gas production, Pakistan anticipates adding 280 million cubic feet per day (mmcfd) by the end of 2024. A comprehensive strategy has been devised to tap into various reserves with key milestones already achieved.