This is with reference to the news item ‘Two percent rise in power tariff on the cards’ (May 1). It is said that electricity tariff has been increased by 12 percent in order to meet the requirements of the World Bank and ADB for securing $2bn which is related with the circular debt of power companies. The power companies are in debt with the banking sector to the extent of Rs 300 bn and this tariff increase will help them in reducing this circular debt. In my opinion, this is the not the solution to reducing the debt but the tariff increase will do the reverse, i.e. will increase the debt and create more liabilities. First, we should understand what this ‘circular debt’ is. Consumers do not pay their bills as raised by the Pakistani distribution companies, for example KESC. Hence, the power distribution companies will not have money to pay to the Pakistani power generation companies, IPPs, from whom they buy power.

Hence, the generation companies will not have money to pay to the Pakistani oil supply companies to buy oil for power generation. Therefore, the Pakistani oil supply companies will not have money to pay to foreign oil-exporting international oil companies, e.g. Saudia’s Aramco, to import oil. Hence, consumers will protest against loadshedding which, in fact, is due to their not paying the bills, thus completing the circular debt. The circular debt is, therefore, initiated by consumers by not paying their electricity bills. Hence, for its reduction, the government should initiate measures to ensure that consumers pay their bills promptly and not by increasing tariff by 12 percent. By increasing tariff, there is a possibility that consumers will protest or not pay the bills, thus increasing the circular debt. They may not pay the bills due to the wrong reasons that the billing is inflated and incorrect and will be paid when rectified.

The government is one of the biggest electricity consumers and hence could set an example by displaying to all how promptly the bills are paid. Secondly, the less the electric energy is used the better for the economy of the country and for reduction in circular debt and oil imports. A ministry may be created for this purpose, called the ministry of energy conservation that should make a plan for the reduction of circular debt for the benefit of the country.


Karachi, May 3.