By Muhammad Mudassar ISLAMABAD, Feb. 17 (INP-WealthPK): Pakistan’s circular debt reached Rs2.47 trillion by December 2021. One of the major reasons is capacity payments to the power-producing entities (IPPs, WAPDA) and volatility in oil and coal prices in the international market. The government has revised the Circular Debt Management Plan (CDMP) to fulfil the conditions of the International Monetary Fund (IMF) and the World Bank. To reduce the vicious circular debt that persists despite massive increases in the electricity prices, the government has decided to raise the power tariff by Rs2.8 per unit in two phases in order to collect an additional Rs292 billion from the consumers by June 2023. According to Federal Minister for Energy Hammad Azhar, after renegotiations with the IPPs in June 2020, the pace of circular debt growth has now slowed down compared with the previous years (it now increases by Rs100 billion a year compared with Rs400 billion a year previously). Pakistan’s total installed capacity of electricity was 37,261MW in FY2020-21 which was 4 percent (1,289MW) more than the previous year. Power generation reached 102,742GWh in 2021. Pakistan's present energy mix consists of 12.2 percent indigenous gas, 26.5 percent hydel, 16.8 percent residual fuel oil (RFO), 19.7 percent RLNG, 6.7 percent nuclear, 4.4 percent renewables, and a minimum amount of imported electricity.

Source	Installed Capacity (MW)	Percentage share
Hydel	9,874	26.5
RLNG	7325	19.7
RFO	6,274	16.8
Coal	4,770	12.8
Gas	4,529	12.2
Nuclear	2,490	6.7
Wind	1,235	3.3
Solar	400	1.1
Bagasse	364	1
Total	37,261

Source: Ministry of Energy, (Power Division) The total consumption of electricity was 84,600 GWh in 2020-21. As shown in the graph, the electricity consumption increased by 4,413 units GWh in FY 2020-21. Pakistan Economic Survey 2020-21 The country’s heavy dependence on imported fuel causes energy security issues. According to renowned economist Farrukh Saleem, more than 80 percent of revenue from exports is spent on importing fuel. According to the Pakistan Bureau of Statistics, the oil import bill rose by 113% to $10.18 billion during July-December FY2021-22 from $4.77 billion in July-December FY2021. The petroleum companies sell their products to the power-producing entities – IPPs and WAPDA. These entities sell electricity to government-owned power distribution companies (DISCOs) that distribute electricity to homes, industries, etc. Owing to expensive agreements with the private IPPs and public sector entities, the cost of electricity increases, causing circular debt to swell. There is a huge gap between the cost of electricity generation, transmission, and distribution and the actual amount of money that is collected in terms of bills and payment of subsidies. According to the energy ministry, the circular debt increased by Rs404 billion in 2020 due to subsidies, higher prices of fuel in the international market, interest on debt, and low bill recovery. Another important issue is demand in the summer and winter seasons. In the peak summer season, the demand exceeds 25,000MW. Effective measures are needed to tackle the issue of circular debt. One of the most important steps is to minimize capacity payment by renegotiating with the energy-producing entities and formulating an effective mechanism to benefit the public. Another possible solution is to reduce circular debt through tariffs because of the difference in demand for electricity in winter and summer. One way to tackle this issue is to reduce tariff in winter and increase it in summer. The government is taking different steps to manage issues in the energy sector. Competitive Trading Bilateral Contract Market (CTBCM) model is one of them, which is in the final phase. The CTBCM model will be a game-changer in Pakistan’s electricity system. Pakistan’s natural gas resources are declining day by day. According to Federal Minister for Energy Hammad Azhar, Pakistan’s natural gas reserves are reducing by 9 percent a year. Hence, the gap between demand and supply is increasing due to a sharp rise in population and industrialization. The price of imported LNG is also high. So, the government should promote and support renewable energy sources like biogas, solar, and wind energy. These are cheap and environment-friendly energy sources that will cut down the import bill.