Circular debt reaches Rs5.42 trillion, capacity payments to IPPs jump to Rs2 trillion

Total payable amount of Chinese IPPs, installed under CPEC, is Rs511 billion: Energy minister

ISLAMABAD  -   The circular debt of the country’s energy sector has reached Rs5.422 trillion, capacity payments to IPPs have jumped to Rs 2 trillion, while the payable amount of Chinese power producers under China Pakistan Economic Corridor (CPEC) is hovering around Rs 511 billion.

This was disclosed by the caretaker Energy Minister Muhammad Ali while briefing the media along with the officials of the Petroleum and Power Divisions. While briefing the media, it was informed that currently the principal circular debt of the petroleum sector stands at Rs 2300 billion, while for power sector it has accumulated to Rs 2400 billion. With interest the circular debt of petroleum sector is Rs 3.022 trillion, which takes the total to Rs 5.422 trillion. However, he said that with various interventions undertaken by the interim government the accumulation of the circular debt has been stopped. In reply to a query, the official of the Petroleum Division said that the total payable amount of the Chinese IPPs, installed under CPEC, is Rs 511 billion.

It was further informed during the briefing that power sector circular debt has been contained within IMF target of Rs 385 billion for end December-2023, which has resulted in the stock settlement of 35% petroleum and 10% power sectors circular debt. A pan-Pakistan anti-theft campaign in all DISCOs was initiated in September 2023, which has resulted in recovery that has increased by 2% translating into Rs. 54.6 billion till January 31, 2024. The total impact amounts to Rs67.4 billion, he added. Similarly as a result of the campaign line losses have decreased translating into benefit of Rs.12.8 billion, the minister claimed.

Similarly, he said that the interim government has started work on tariff rationalization by minimizing cross subsidy for industrial consumers resulting in regionally competitive tariffs of 9 cents per unit and increased electricity consumption. The propose tariff rationalization if approved will increase in electricity sales resulting in higher recovery of fixed costs and lower per unit cost of electricity for all consumer categories. The minister said that the interim government has approved work on 80 kilometer portion of Iran Pakistan Gas Pipeline project. The recent green lighting of recommendations by the Ministerial Oversight Committee signals a commitment to advancing energy projects, with a focus on the initial 80km segment of the pipeline within Pakistan. The project, managed by ISGS and funded through GIDC, is set to extend from the border to Gwadar in the first phase. When asked about the US sanctions on IP project, the minister said that he do not know what the US wants regarding the IP project. However, he maintained that currently the work on 80km will be carried out inside Pakistan which will take one year to complete and I don’t see any US sanctions at this stage. Its connection with the Iranian side for the supply of gas will take time, he added.

While giving details the minister said that Pakistan signed an agreement with Iran for a gas pipeline in the year 2009 and under the arrangement is bound to implement the gas project. On the capacity payments, official of the Power Division informed that out of the total electricity generation cost of Rs 3.2 trillion, around Rs 2 trillion is capacity payments to independent power producers (IPPs). Regarding the privatization of the state owned Discos, the minister informed that Cabinet approval has been received for private sector participation in operations of two DISCOs (HESCO and GEPCO) through long-term concession agreements leading to eventual privatization of DISCOs.

However, he said that no sale of government assets is involved in the process, which is backed by successful precedents in countries like Turkey, Argentina, Brazil, and Uganda. As per the presentation, without substantial investments in indigenous energy resources and energy efficiency measures, the energy import bill of the country would reach to $60 billion on importing within the next two decades from the current $17.5 billion. Caretaker minister for energy Muhammad Ali, while briefing media persons here about efforts to address the challenge, 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 policy aims to invigorate existing exploration and production (E&P) companies to intensify their exploration endeavors. Additionally, amendments to the Petroleum Exploration & Production Policy 2012 were made to adapt to changing market conditions and promote investment in the energy sector.

An official of the Petroleum Division while briefing the media said that efforts to revive dormant wells and reignite dormant discoveries have become vital strategies, with recent advancements emphasizing 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 6 new oil and gas findings. On January 24, 2024, the government executed Petroleum Concession Agreements (PCAs) and Exploration Licences (ELs) for eight oil and gas blocks, the official added.

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. Incentives have been extended, including funds covering 27.5 percent of project costs and a tariff protection mechanism. These measures seek to provide financial and regulatory support to incentivize refinery upgrades and enhance overall sector efficiency. The revised refining policy is anticipated to facilitate a $6.5 billion investment in upgrading five local refineries, leading to the production of environmentally friendly Euro-V-compliant fuels and a significant increase in local production capacity.

In efforts to bolster domestic gas production, Pakistan anticipates adding 280 million cubic feet per day (mmcfd) by the end of calendar year 2024. A comprehensive strategy has been devised to tap into various reserves across the nation, with key milestones already achieved. Additionally, Pakistan’s energy sector is advancing with key projects underway, including the Iran-Pakistan Gas Pipeline Project (IP) and the Pak-Stream Gas Pipeline Project (PSGP). Efforts are also ongoing to establish Strategic Underground Gas Storages (SUGS), enhancing energy security and infrastructure. The ministry also mentioned recent developments in Pakistan’s mineral sector including significant discoveries following geophysical surveys and chemical analyses. A memorandum of understanding (MoU) worth $200 million has been signed between PMDC and Miracle Salt, USA, focusing on Pink Salt processing. Agreements with China, UAE, and Kuwait aim to attract investment in mineral exploration. Additionally, agreements for copper and rare earth metals mining with Kuwait have been pursued.

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