Albert Camus, a French philosopher, once wrote about Sisyphus, a king condemned by the Greek gods to push a boulder up a hill. Only, to his torment, the boulder rolled back down every time it reached the top, trapping him in an endless cycle. Finance Minister Muhammad Aurangzeb’s recent announcement of Pakistan’s largest financing arrangement — a Rs1.225 trillion deal with 18 local banks to settle power-sector arrears — echoes this tragic myth.
Though the deal appears promising, offering hope of freeing the country from the shackles of power debt, it remains Sisyphean in nature: the state pushes the boulder of circular debt uphill, only for it to roll back down again, crushing consumers under the weight of revised tariffs.
Watt a deal!
The recent Rs1.225 trillion package comprises Rs660 billion for the restructuring of old loans and Rs565 billion in fresh funds to clear overdue payments, primarily owed to Independent Power Producers (IPPs) — private companies that generate electricity and sell it to the national grid. This hefty loan, secured from a consortium of 18 local banks, will be repaid over six years through the existing Debt Service Surcharge (DSS) — a small per-unit charge on electricity bills — of Rs3.23 per unit.
The deal does look golden. It provides much-needed relief to lawmakers, who can now turn their attention to other pressing challenges — perhaps even to the absurdities of Pakistan’s tax structure. By paying off long-overdue energy liabilities, the government averts the risk of being lambasted by the IPPs with late payment surcharges, steadying the cash cycle and ultimately the availability of electricity.
It may also have spared Pakistan’s “Leviathan” of foreign debt from growing further by wisely turning to local banks instead of external lenders. This approach helps rebuild investor confidence and could open the door for new investments.
Moreover, the decision to repay the loan through a ring-fenced plan tied to an existing DSS, rather than introducing a new tax, makes the move easier to justify to the public. And there might even be a faint silver lining in the government’s claim of “freeing up” Rs660 billion in sovereign guarantees — essentially a government’s promise to repay certain debts if public entities default. While this doesn’t mean new cash in hand, it does create accounting headroom, allowing funds to be directed towards other crucial sectors.
Lighting the same fire, again and again
The government, it seems, has thought this one through. Yet, as Camus once warned, “the absurd lies not in the effort itself, but in repeating it without resolution”.
This “heroic” fix isn’t new; just a more sophisticated version of an old script. Yet, it remains the least bad among a set of imperfect choices. In 2013, Pakistan cleared roughly Rs480 billion in power sector debt. Six years later, in 2019, it did it again, this time around Rs400 billion, through two Pakistan Energy Sukuks (PES-I and PES-II) — government-backed Islamic bonds issued to quickly raise cash and pay off overdue bills to power producers.
Each time, the move was celebrated as a decisive blow against the sector’s chronic malaise. And yet, like Sisyphus condemned to his eternal climb, the boulder kept rolling back, only heavier with every descent. Why? The reasons are many.
Imagine the power sector as a pipeline of money that needs to flow smoothly — from customers to distribution companies (Discos), then to the central buyer (CPPA), on to power plants, and finally to fuel suppliers. Debt builds up when not enough cash passes through this pipeline.
This shortfall arises from several factors: transmission losses due to outdated and shabby infrastructure, electricity theft, which entails consuming power without payment, fixed capacity payments that must be made to producers even when energy isn’t dispatched, and under-collection when billed amounts are not fully recovered. This leaves the Discos cash-strapped, who underpay the central buyer, which in turn underpays power producers and fuel suppliers; late payment surcharges then accrue, worsening the deficit. This growing pile of unpaid payments is, in essence, circular debt.
This vicious cycle, with every inefficiency feeding another, mirrors Sisyphus’ misery. Camus suggested we must imagine Sisyphus happy, for in his struggle, he has acknowledged the certainty of his fate. However, Pakistan doesn’t have that luxury, as this fiscal ferris wheel has far-reaching implications. Circular debt makes power costly, as tariffs are hiked to make up for the cash deficit. It results in frequent shutdowns as power producers fail to pay for the fuel required to run their plants. Moreover, it drains public funding through recurring bailouts and guarantees, diverting the budget away from social welfare projects.
The irony is that to cauterise this oozing wound, Pakistan itself has relied on circular measures and has failed to sheathe the sword that cuts it anew. Although the deal is a welcome step, it only buys us time, not reform. To escape Sisyphus’ ill fate, the power sector must use this allowance to atone for its structural flaws — persistent losses, under-collections, crippling capacity payments, and costly subsidies.
The real power reform lies beyond bailouts
This begins with expanding the deployment of smart AMI meters (Advanced Metering Infrastructure) to improve recovery and introducing prepaid systems in areas where electricity theft is chronic.
Inefficient generation companies (Gencos) need to be retired, with their gap filled by cheaper renewable alternatives, easing the burden of hefty capacity payments. The Competitive Trading Bilateral Contract Market (CTBCM) must be fully operationalised to encourage competitive pricing, alongside a comprehensive upgrade of the national grid to curb power losses.
Above all, tariffs must be cost-reflective, priced at what power truly costs. This, however, must be paired with targeted subsidies to protect lifeline consumers. And perhaps the sine qua non of power sector reform lies in insulating Discos from political patronage, whether through outright privatisation or performance-based concessions.
None of these reforms are new. National Electric Power Regulatory Authority (Nepra), the International Monetary Fund (IMF), and the World Bank (WB) have repeated them ad nauseam.
Yet, until power losses are curtailed, subsidies rationalised, and governance overhauled, Pakistan will continue to hail each bailout as a breakthrough — only to find itself condemned to a Sisyphean fate.
Header image generated via Canva AI
from Dawn - Home https://ift.tt/QCGhUmp
Comments
Post a Comment