Presented By: VIJAY KUMAR

(16730)
Circular debt is the debt, where all members are both a creditor
and a debtor. In the circular debt every individual owe to
someone and the net final creditor in the string is indebted to the
first creditor. In the end all the balance of all debts between the
individuals is ZERO.
EXAMPLE:
Taking the specific example of Independent Power Producers (IPPs) in
Pakistan, they mostly operate oil-fired or coal-fired plants. The Pakistani
government provides them the fuel for which the IPPs need to pay. On the
other hand, the different electricity boards (government owned) procure
power from the IPPs and distribute it to the populace. They charge the public
for the electricity and need to pay the IPPs for the power.
It often happens that the government is unable to pay the IPPs for the power
procured and the IPPs, in turn, are unable to pay the government for the fuel
supplied
Power generation and distribution companies:
K-Electric
Independent Power Producers (IPPs) (e.g.,
Hub Power Company and Kot Addu Power Company)
WAPDA Hydel, and the
Pakistan Electric Power Company (PEPCO)
power generation companies (GENCOs)
National Transmission
and Dispatch Company (NTDC)
power distribution companies (DISCOs)
Suppliers of primary energy:
(a) oil/gas exploration companies (e.g., OGDCL
and PPL),
(b) oil refineries (e.g. Pak Arab Refinery Ltd )
(c) distribution companies in gas (e.g., SNGPL,
SSGC) and oil (e.g., PSO, Shell).

This debt circle begins with the government as the

biggest debtor and ends with a government-
owned entity as the biggest creditor.
1) OUTSTANDING BILLS & PAYMENTS
Many entities, various private and public sectors are
defaulted to pay huge electricity bills and other payments.

2) TARIFFS AND SUBSIDIES

Government is unable to pay the power tariffs subsidies to
electricity companies.

3) LIQUIDITY TRAP
When people expected rate of return from investments in
securities and other assets become low, investments go
down.
Circular debt increases due to lack of supply of money in
the market.
4) IMPORT AND EXPORT
(TRADE BALANCE)
Higher amount of import leads the
Federal reserves to be getting low which
further leads the government to take loan
from IMF (International Monetary Fund)
and World Bank.

5) GOVERNMENT POLICY
 The exporters are also not facilitating
properly.
 There is no sustainable job to produce
more electricity.
 Self consideration or Party
consideration of the government.
 CURRENT SITUATION OF
CIRCULAR DEBT IN PAKISTAN
 Circular debt of Rs1.3trillion passed on to new govt till
OCT-18
 DECREASED
SOCIAL
INDUSTRIAL
EFFECTS INCREASED OPERATIONS
PRICES
• The most effected industry by circular debt is oil, petroleum,
power and electricity generating companies.
OGDCL
Attock Refinery Limited (ARL)
PAK Arab Refinery Limited (Parco)
Pakistan State Oil (PSO)
Shell
Sui Northern Gas Pipelines (SNGPL)
Karachi Electric Supply Company (KESC)

Hub Power Company

Kot Addu Power Company
Water and Power Development Authority (WAPDA Hydel)
Pakistan Electric Power Company (PEPCO)
 MEASURES TAKEN BY THE
GOVERNMENT
 The Pakistan investment bonds and Treasury bills both, worth of
Rs.195 billion has been issued by State Bank of Pakistan.

 The government is also thinking to privatize the Pakistan

Railways

 Power Division has given the target to Discos to recover Rs 80

billion from old receivables while freezing the receivable figures
as they stood on October 31, 2018. Discos have also been
directed to recover another Rs 60 billion by controlling theft and
improving governance/ efficiency.

 the government has increased power tariff by 11 per cent, in

addition to crack down against defaulters and electricity thieves.
With these drives, the collection from consumers has improved
by Rs 13.7 billion.
The resolution of circular debt is necessary as this
will ease supply constraints. The task is challenging
since it requires the outstanding stock of circular
debt to be cleared before plugging further build-up
of circular debt receivables. One key lesson is that
power subsidies can be sustained only if these are
explicitly recognized in the fiscal budget; otherwise,
the economy will continue to suffer from the indirect
cost of these subsidies.