The cabinet’s decision for the state to take over circular debt is both unsurprising and necessary. With international lending agencies making this a condition for Pakistan in its bid to restructure the economy, we all knew this was coming; it was only a matter of when. Rs800 billion is now owed and a state bailout is urgently needed, but what comes next is still shrouded in mystery. All along the supply chain, payments stand unpaid, from the government to the distribution and power production companies, all the way to the oil suppliers.
In the past, ensuring that the end-consumer was passed off the actual cost of electricity – instead of the subsidised rate – alongside timely payments across-the-board would have been the major changes needed to make the power sector sustainable. But things have gotten much worse since the problem first began, not to mention the fact that line losses were never accounted for in the overall revenue adjustments.
This, like many others, is a problem of our own making. Even if the government chooses to pay off the money owed, will this solve our problem? Previous governments have attempted to pay off the circular debt in one fell swoop, with all the efforts ultimately proving fruitless as mismanagement of payments in the sector has led to the figure owed climbing ever higher as the years pass. What this is indicative of is the need for structural adjustments in payment disbursal and a review of the tariff and taxation policies in the energy industry.
It is hoped that the government’s decision to shoulder an additional burden of Rs800 billion in debt payments is enough to shock our collective system into ensuring that this unnecessary combination of mismanagement and irregular business dealings comes to a swift end. Now that the state has taken on this responsibility again, it is time to take advantage of this opportunity and make sure that we are not in this position down the line once again.
