Click to edit Master title style 1

Lahore Electric Supply Company Limited

BRIEFING ON CIRCULAR DEBT IN POWER SECTOR

 Click toDEBT
CIRCULAR edit Master titleSECTOR
IN POWER style 22

Definition
In context of Power Sector, circular
debt (CD) is that amount of cash
shortfall which is receivable from
DISCOs by CPPA-G and payable to IPPs,
GENCOs, WAPDA and Oil & Gas
companies.
 Click to editOF
FLOW Master title style
POWER 33

WAPDA-Hydel
1. LESCO
D 2. GEPCO
3. MEPCO
I 4. FESCO
S 5. HESCO
GENCOS 6. IESCO
NTDC C 7. TESCO
O 8. QESCO
9. PESCO
S 10. SEPCO

IPPs
KESC
(Vertically
Integrated)
 Click to edit
FLOW Master title style
OF REMITTANCE 44

WAPDA-Hydel NTDC
1. LESCO
D 2. GEPCO
3. MEPCO
I 4. FESCO
S 5. HESCO
GENCOS 6. IESCO
C 7. TESCO
O 8. QESCO
CPPAG 9. PESCO
S 10. SEPCO

IPPs
Short Remittance
KESC
 Click to edit
FLOW Master title style
OF REMITTANCE 55

Power Plants
Less money paid IPPs receiveables
IPPs, GENCOs &
by DISCOs to CPPA accumulate
WAPDA

CPPA buys
IPPs unable to pay
electricity and Less collection by
the Oil companies
sells at NEPRA DISCOs
(OMCs)
tariffs

DISCOs & KESC Consumers CIRCULAR

DEBT
 ClickCircular
to edit Debt-Yearly
Master title style 66

Mln. Rs.

Payable to Power Producers Payable by PHPL

Fiscal
Energy Capacity Total
Years UoSC Others Total Principal Markup
Payment Payments
2013-14 155,787 46,981 40,693 22,063 265,524 265,224 - 530,748
2014-15 160,694 40,460 77,748 34,208 313,110 335,474 - 648,584
2015-16 179,929 19,808 81,844 39,452 321,033 367,961 - 688,994
2016-17 198,589 83,498 79,711 17,228 379,026 438,961 - 817,987

2017-18 289,512 161,444 73,743 19,199 543,898 583,488 32,747 1,160,133

Circular Debt is swelled to Rs. 1.30 Trln as on Dec-18.

(News Reports)

Note: Source of circular debt amount/ data are Different Reports and Websites
 Click to edit
Payable MasterPlayers
To Power title style 77

Note: Source of circular debt amount/ data are Different Reports and Websites
 Click to edit Master title style 88

CIRCULAR DEBT
IN POWER CAUSES
SECTOR
 Click DEBT
CIRCULAR to edit
IN Master title style
POWER SECTOR – CAUSES 99

MAJOR CAUSES OF CIRCULAR DEBT

 Excess T&D Losses than NEPRA Target
 Below target Recoveries
 Delay in Tariff Determination
 Delay in Tariff Notification
 Delay in processing and release of Subsidy claims
 Others-GENCOs Inefficiencies, Tax Issues etc.
 Click to
CIRCULAR edit
DEBT MasterSECTOR
IN POWER title style
– CAUSES 10
10

Unrealistic Targets of T & D Losses

1. The targets of T & D losses determined by
NEPRA usually do not grasp the actual
technical losses and are not as such
achieved.
2. DISCOs operating in Punjab Province of
Punjab are not allowed to recover losses
resulting from poor law and order situation
in certain hard areas such as border areas.
 Click to
CIRCULAR edit
DEBT MasterSECTOR
IN POWER title style
– CAUSES 11
11

Composition of T & D Losses

1. Technical Losses
2. Administrative losses
Financial Impact of
NEPRA T&D Losses Actual T&D Excess T&D Losses
Financial Year Target Losses -LESCO
Rs. Mln

FY 2015-16 11.75% 13.94% 4,937

FY 2016-17 11.75% 13.76% 4,621

FY-2017-18 11.75% 13.83% 5,658

 Click
CIRCULAR to IN
DEBT edit Master
POWER title
SECTOR style
– CAUSES 12
12

Delay in Processing and Release of

Subsidy Claims
1. GoP usually picks up substantial portion of service
cost of supply of electricity and subsidies like TDS
& ISP etc.
2. The resultant subsidy claims lodged by DISCOs are
not timely approved for releases
3. GST subsidy allowed by Govt. of the Punjab on
agriculture consumers remains payable on their
part for longer period
 ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– CAUSES 13
13

Below Target Recoveries

1. In tariff determination, NEPRA does not
allow provision for less recovery from
defaulter consumers

2. Govt. departments usually do not timely

pay the electricity bills and thus cause
accumulation of CD.
 Below Target Recoveries & Delay in Processing and Release
Click to edit Master
of Subsidy Claims
title style 14
14
Rs. Mln

Receivables
Recovery Subsidies
Year From
(%) Receivable
Consumers

2015-16 99.65 47,626 9,085

2016-17 100.45 52,440 14,381

2017-18 97.8 63,938 19,142

2018-19
99.0 76,769 33,431
(Dec-18)
Spill Over For
FY 2015-16 Rs. 14,179 mln
FY 2016-17 Rs. 15,821 mln
FY 2017-18 Rs. 18,339 mln
15
ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– CAUSES 15
15

Delay in Tariff Determination and Notification

LESCO’s Payable to CPPA during FY 2015-16 onwards have persistently
increased owing to following factors:

1. The delay in Tariff determination and notification has badly impacted

financial health of LESCO. For instance, the Tariff Notification for
FY 2015-16 has been issued on Mar 22, 2018.

2. LESCO’s Quarterly Adjustment claims (Jul-17 to Jun-18) of

Rs.31,969 Mln, determined by NEPRA on 31-08-2018.

3. Excess PYA recovery upto 21st Mar 2018 amounting to Rs. 24,059
Mln is determined by NEPRA on 31-08-2018.

4. The determined PYA is notified on 01-01-2019.

 Click DEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– CAUSES 16
16

Others
GENCOs Inefficiencies
1. Electricity generation from thermal system is
contributed by IPPs ( Pvt. Sector) and GENCOs
(Public Sector). Generation cost of IPPs is
substantially higher than that of GENCOs which
operate below rated capacity owing to various
inefficiencies.
2. Cheaper generation by GENCOs at low efficiency
level leads to higher cost of service to consumers
by disturbing energy mix and results in low
recovery by DISCOs
 Click
CIRCULAR to edit
DEBT Master
IN POWER title style
SECTOR – CAUSES 17
17

Others
Taxation Issues
1. FBR levies GST and income tax on the amount of subsidy
allowed by GoP which can not be recovered from
consumers. This keeps DISCOs unduly engaged in attending
the recovery notices at appellate and legal fora

2. GST has to be paid to FBR as per billing to consumers

instead of cash collection. This sticks scarce revenue for
unjustified legislation

3. Refund claims are not decided by FBR

 Click to edit Master title style 18
18

CIRCULAR DEBT
IN POWER REMEDIES
SECTOR
 ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– REMEDIES 19
19

To address the causes of Circular Debt (CD) as

narrated in previous slides, following are
recommended as remedies:

• GoP may direct entities and NEPRA to

ensure timely processing of tariff
petitions and their determinations while
covering all legitimate components of
cost of service.
 ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– REMEDIES 20
20

• Timely notification of the tariff determined by

NEPRA to ensure recovery of legitimate cost of
service as per matching principle.

• To bring about improved corporate

governance, GoP needs to redefine its policies
on power sector and empower BoDs of the
entities to take imperative initiatives for
financial autonomy ensuring viability of the
sector.
 ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– REMEDIES 21
21

• To bring about competitive market model,

focus needs to be laid on capacity building
and training of the man power working in the
in the relevant area of sector.
• BoDs of the entities should be constituted on
high standards of merit, free from political
pressures so as to work independently purely
in the interest of the respective entities in
particular and the sector in general.
• Consumer end tariff should be reflective of
actual legitimate costs.
 ClickDEBT
CIRCULAR to edit MasterSECTOR
IN POWER title style
– REMEDIES 22
22

• Uniform tariff policy needs to be gradually

eliminated by shifting to performance based
tariff, while removing cross subsidy support
between efficient and inefficient entities.
• In fuel efficiency policy, priority should be
assigned to the power sector.
• Special focus needs to be laid on enhancing
hydel generation capacity & other renewable
energy resources while exploring new
opportunities.
• Effective campaign on energy conservation
needs to be launched on national level.
Click to edit Master title style 23
23

Thanks