A new report issued by an independent think tank PRIME has warned that continuous build-up of the circular debt, which stands at an all-time high of 5.2% of GDP, poses a threat to the country’s energy security and consumer welfare. The report acknowledges the federal government’s efforts to reduce capacity payment liabilities and its plans to introduce a long-overdue competitive market regime. The Prime report mentions that the share of renewables in the energy mix has gone down from 8.2% to 2.4%.
The key messages of the report are: for every unit of electricity produced, on average only Rs. 14 is collected as opposed to its real cost of Rs. 21, adding the difference of Rs. 7 to the ever-mounting ledger of circular debt. The circular debt build-up is attributed to multiple causes namely, Tariff Differential Subsidy, Capacity Payments, T&D and Recovery Losses, and Governance Issues. The report establishes that this has led to an unprecedented level of circular debt amounting to Rs. 2.3 trillion.
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