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Energy sector hit hard by financial anomalies

Receivables of power sector swell to Rs600 bn; circular debt touches Rs300 bn

Khalid Mustafa
Friday, November 28, 2014
From Print Edition

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ISLAMABAD: The worst governance continues to hit the energy sector due to which the
receivables of Power Electric Power Company (Pepco) alarmingly surged up to Rs600
billion by October 31 and the circular debt has gone up to Rs300 billion that has also
adversely affected the state owned oil marketing company Pakistan State Oil (PSO), top
sources in Ministries of Water and Power, and Petroleum and Natural Resources told The
News.

PSOs many Letters of Credit (LCs) and overdraft (OD) lines have got choked because of nonavailability of payment capacity. So much so, the PSO has defaulted of five banks that include
NIB, NBP, MCB, HBL and UBL, one of the top mandarins of petroleum ministry told.

He went on to highlight the miserable financial state of the entity, saying that PSO has failed to
pay Rs4.6 billion to the NIB bank that it had borrowed from the bank and now got defaulted of
the said bank. Likewise, MCB has also declared PSO its defaulter as the state owned OMC
cannot pay the credit line of Rs2.6 billion on time. PSO has also got defaulted of the NBP, UBL
and HBL.

This means the state owned entity will not be in a position to get more credit lines for
maintaining the operation of importing POL products in the country. Some of the banks in their

correspondence to the top management of PSO clearly warned of reviewing their existing
relations with the said oil marketing company.

The latest financial statement of the PSO available with The News disclosed that it has virtually
landed in the deep financial constraints as its receivables have jacked up to Rs223 billion out of
which power sector alone needs to pay Rs200 billion and PIA Rs13 billion. The payables of PSO
are also on the increase and have now swelled to Rs179 billion.

The top official of Ministry of Water and Power told that till September 30, 2014, the receivables
of Power Electric Power Company (Pepco) stood at Rs577 billion that further jumped to Rs600
billion by October 31 showing the government has miserably failed in improving the revenue
outlook of the power sector.

The official said that payables of the Pepco stand at Rs274 billion. And out Rs600 billion
receivables, four provincial governments, AJK and KESC owe to pay Rs200 billion to Pepco and
private sector Rs400 billion.

Meanwhile, many of the IPPs have also warned of invoking sovereign guarantees for not getting
their arrears and they have also reduced the electricity generation. The writ of the government
has weakened that is why the private sectors arrears are on the rise. Electric Power Distribution
Companies are not law enforcing entities and cannot take the defaulters to task. The main chunk
of arrears in the head of private sector is needed to be paid by running defaulters that include the
big industrialists.

As far as the arrears provincial government, AJK and KESC owe to pay are concerned, the
official said that political will is required to cope with this problem. The official said that there is
no let-up in losses the power sector is sustaining. If the official figure of 18.5 percent losses is
accepted, then 6 percent losses out of 18.5 percent system sustains because of electricity theft
meaning by that whole system faces loss of Rs50-60 billion per annum.

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