Government Unveils Comprehensive Strategy to Reduce Circular Debt by One-Third

In a recent televised interview, Muhammad Ali, the caretaker Energy minister, announced the government's unveiling of an ambitious circular debt reduction scheme. The primary objective is to slash the country's total circular debt of Rs5.5 trillion by one-third, contingent on effective implementation.

Ali highlighted the three-month-long focused effort to finalize the scheme, expressing confidence in its effectiveness after in-depth analysis. The proposed strategy necessitates approval from the Ministry of Finance before submission to the International Monetary Fund (IMF) for final authorization.

A substantial gas tariff burden, with Rs2.9 trillion attributed to the gas sector and Rs2.6 trillion to the power sector, has been a pressing issue for the country. The government previously increased the gas tariff in November to address the problem, resulting in a cessation of the debt increase, as reported by the energy minister.

The high burden of interest payments, constituting Rs1 trillion of the total debt, remains a major concern. The new scheme aims to alleviate this burden by minimizing the impact of these debt payments.

Furthermore, entities like GENCOs, DISCOs, and companies such as Pakistan State Oil (PSO) are burdened with a substantial accumulation of receivables, totaling Rs500-Rs600 billion. Implementation of the initiative is expected to enable these entities to recover their receivables, enhancing their financial health.

The minister emphasized the significant cross-subsidy amount, with the government providing a Rs600 billion subsidy to the domestic sector annually, Rs250 billion of which is contributed by the industry. The scheme aims to reduce the cross-subsidy and provide electricity to the industry at a more competitive rate of 9 cents, compared to the current 14 cents.

Reduced electricity prices are anticipated to encourage industries to shift from gas, benefiting the power sector. This shift is crucial to maintaining competitiveness in international markets, preventing a decline in exports and foreign earnings, and curbing the rise of power tariffs.

The scheme also addresses the privatization of Distribution Companies (DISCOs), with the aim to privatize them. The proposal is set to be presented to the privatization committee of the cabinet following approval from the Cabinet Committee on Privatization (CCoP).

In response to questions about Saudi Arabia's interest in Pakistan's oil and gas exploration sector, Ali stated that the country is eager to invest. The key lies in presenting bankable projects and maintaining continuous coordination with Saudi Arabia, according to the caretaker minister. Teams are expected to visit Pakistan following productive engagements between the government and interested parties.