The government has initiated efforts to convert circular debt (CD) in the power sector into public debt. This move is expected to lower electricity tariffs by Rs3.37 per unit, according to reports on Sunday.
Additionally, the government plans to restructure $16.26 billion in energy-related debt. This includes loans for hydel, imported coal, Thar coal, wind, solar, transmission, nuclear, WAPDA hydel, and Neelum-Jhelum projects. Currently, $3 billion is allocated for debt servicing through consumer electricity tariffs, translating to Rs8.63 per unit in capacity charges.
Re-profiling Loans to Reduce Tariffs Further
A nine-page reform document highlights that the government aims to extend debt repayment periods to achieve relief of Rs5.1 per unit. By refinancing interest-bearing circular debt through sovereign debt, tariffs could decrease by Rs3.23 per kWh for non-protected consumers, reaching Rs3.78 per kWh after tax.
The document states that converting circular debt into public debt would eliminate arbitrage within sovereign risk and allow better pricing of sovereign payables. However, it also acknowledges that this move may slightly increase overall sovereign debt levels.
Breakdown of Circular Debt
The total circular debt stands at Rs2.26 trillion, including Rs1.74 trillion in interest-bearing debt. This is divided into:
- Power Holding Limited (PHL) Debt: Rs683 billion
- Payable by CPPA to Power Producers: Rs1,060 billion
- Non-interest Payable by CPPA to Power Producers: Rs683 billion
Currently, PHL debt is priced at 3-month KIBOR + 0.45%. The government sees an opportunity to reduce this spread by shifting to a fixed-rate bond with a longer tenure, leading to significant interest savings for consumers.
High Interest on CPPA Payables
The paper also highlights that receivables payable by CPPA to Independent Power Producers (IPPs) accrue interest at 3-month KIBOR + 3%, a high rate for sovereign-guaranteed payables. The government aims to reduce this spread to lower electricity costs.
Plan to Sell Surplus Electricity at Competitive Prices
To boost industrial demand, the government is devising a plan to sell cheaper surplus electricity to bulk consumers. This will be done through auctioned prices for 2-3 years, ensuring affordability for industries and increasing overall electricity consumption
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