ECC to address root cause of Rs1.17 trillion circular debt

ISLAMABAD: The first meeting of the newly-reconstituted Eco­n­o­mic Coordination Committee (ECC) of the Cabinet did not take any conclusive decision on Wednes­day but appeared to be setting the stage for some serious business — to make fertiliser companies return Rs10 billion windfalls to the economy and to address the root cause of power sector circular debt.

Presided over by Finance Minister Asad Umar, a meeting of the ECC did not formally take up the difficult political decision for an increase in consumer-end gas prices by an average 30 per cent determined by the regulator a few months ago.

A senior official who attended the meeting told Dawn that the finance minister allowed everybody to express their views and give input and appreciated valid observations. After hearing them all, he desired that these be converted into written suggestions for an informed decision-making in a future meeting.

Fertiliser industry will be made to return Rs10bn windfalls it earned out of subsidy

The meeting believed that the fertiliser industry had earned wind­falls last year when it was allowed subsidised gas for maximum fertiliser production for dom­estic agriculture. However, some participants viewed the subsidy was utilised for higher production that was later exported; otherwise there would have been no need for fertiliser import at this stage.

The summary under discussion demanded import of 600,000 tonnes of urea for the upcoming crop-sowing season. It was observed that the industry had earned Rs10bn extra windfalls out of subsidy and its export and should be made to pass on the amount to domestic farmers.

Mr Umar, who himself has a long practical background of the fertiliser industry, “expressed displeasure on the issue of fertiliser pricing and its export, taken by the previous government which was totally against the interests of the farmer community”, an official statement said.

He said the interest of poor farmers should be the supreme motivation for taking such decisions. The ECC was informed that the total requirement of fertiliser for this sowing season in the country would be around 600,000 tonnes.

The meeting decided to form a committee led by Adviser to the PM on Industry and Production Abdul Razak Dawood to hold discussions with the local fertiliser industry to ascertain the total domestic production. The committee will present its recommendations in the next ECC meeting to enable decision-making regarding import of urea.

In another summary, the power division of the ministry of energy demanded about Rs170bn to partially bail out the power sector that had developed a total circular debt of Rs1.178 trillion, with an addition of Rs30bn in July. It reported that fresh flow of circular debt stood at Rs566bn as of July 1, 2018, but had gone up to Rs596bn at the end of July.

Another Rs582bn were parked with the Power Holding companies under short-term financing facility arrangements, taking the total liability to Rs1.178trn. It was also reported that total receivables of the power sector had piled up close to Rs800bn.

It was agreed that habitual defaulters should be immediately shifted to pre-paid meters and areas with high incidence of default should be included in such a scheme. The major cause of concern was average power sector losses of about 18.5pc instead of 16.3pc allowed by the consumers. A committee was formed to address price gaps that develop on a quarterly basis because of currency indexation, etc., so that these do not pile up as circular debt.

It was also concluded that receivables should be reconciled with provincial governments, particularly Balochistan and Azad Kashmir, for settlement of their arrears and also to aggressively take up with K-Electric for recovery of Rs80bn arrears to the national grid.

As such, the meeting identified five-six key areas that accounted for the pile up of these liabilities and formed a few committees to work upon the reasons and formulate their suggestions to be presented in the next ECC meeting scheduled in the next week. The ECC will later present its suggestions to the cabinet for approval and decision on the future course of action.

The finance minister said all facts will be shared with the public to make the decision-making a transparent and inclusive exercise. He also deferred a decision on a summary regarding arrangement of funds for the Pakistan State Oil to dilute its receivables of about Rs330bn after initial discussion saying the subject was closely linked with the circular debt, and should be settled next week in a holistic manner.

Published in Dawn, August 30th, 2018

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