Circular debt genie out of the bottle again

What is circular debt? In: Economics, Pakistan, Business and Industry [Edit categories] Answer: Circular debt is when, to give a three-person example, A owes B, who owes C, who owes A. As in Pakistan Circular Debt is a major issue in Energy Sector where it is at alarming heights. ( By Raheel Rao, Kasur) Circular debt relates to subsidies which the government in Pakistan is providing to the electricity consumers. By not collecting the bills KESC does not have the funds too pay its oil supplier , which could be PSO which in turn does not have the funds to pay its supplier, National Refinery say and then National Refinery does not have the funds to pay for imported oil. A better name is incorporate debt, ================= Definition of 'Bond Circular' A standardized legal document that contains an abbreviated version of the relevant terms from the prospectus of a new bond issue. The bond circular is made available to prospective investors and contains basic information including: issuer, amount of the issue, coupon, use of proceeds and final legal maturity of the bond. Also known as an "offering circular". The bond circular describes whether debt is senior or subordinated and how the company plans to use the issue proceeds. Definition of 'Government Paper' Debt securities that are issued or guaranteed by a sovereign government. Government paper of a nation is usually perceived as the least risky debt securities in that country, and will offer investors the lowest yields compared with debt of a similar maturity issued by other entities in that nation. Investopedia Says Investopedia explains 'Government Paper' Risk perceptions of government paper issued by different nations vary widely depending on a number of factors including credit rating, default history, political stability etc. U.S. government paper is considered to be among the safest investments and practically risk-free. EURJPY peeped above the 98.00 mark in recent dealings helped by the EU Commission saying there will be no need for sovereign guarantees for recapitalization euro zone banks once a banking supervisory body is in position. However, EURJPY failed to sustain above that level and pulled back toward the 97.80 zone where it is trading at time of writing, 0.2% above its opening price. =================== Crosses Rs216 billion threatening power generation Munawar Hasan Thursday, December 12, 2013 From Print Edition 19 1 6 2 LAHORE: The reborn genie of circular debt is now a giant once again and has crossed the Rs216 billion figure, once again threatening power generation by existing plants and blocking new investments, it was learnt here on Wednesday. According to the latest data, in less than five months after it was hurriedly cleared by the new PML-N government, the debt has snowballed causing serious cash flow problems for power generation companies. Last time sovereign guarantees were invoked by power producers when outstanding payments were only Rs200 billion. As the circular debt benchmark has already exceeded that mark, the government could soon confront by the challenge of sovereign guarantees if invoked by the private power producers, sources warned. The other adverse impact of circular debt monster has been on new investment in power sector. Sources warned that the huge investment in new power projects would be jeopardized if the resurgent circular debt issue is not resolved. They blamed lack of good governance and mismanagement on the part of public sector enterprises for high line losses and failure in recovering power dues from consumers. The major chunk of the circular debt, official sources do admit, has been slippage in recovery of billed amounts during the past four months while distribution losses are also on the rise. Commenting on various factors behind the rising circular debt, sources said, multiple constraints are adversely affecting cash flow in the power sector. Firstly, the issue of tariff differential although has been addressed to a certain extent, but payments against certain slabs need to be paid on time. Secondly, distribution losses are continuously increasing and very few power sector utilities are able to maintain losses to around 10 percent while most of others’ losses are as high as 20 per cent to 38 percent. Ideally speaking, sources observed, the distribution losses should not exceed 6 percent but our national average is 20 percent. We are losing this volume of power due to this otherwise manageable inefficiency, sources said and added most worrying thing in this regard has been rising trend in distribution losses as well as low recovery of billed amount. When contacted, federal Minister for Water & Power Khawaj Asif did not respond about the rising circular debt, but sources said that electricity generation could soon be affected due to dearth of funds especially during upcoming annual canal closure days when dependence on thermal plants would increase tremendously. If we failed to make timely payments to power sector entities, sources cautioned, we would have been in a dire mess of outages again. Talking about new investment in power sector, sources said, there was almost no work on new power projects for last many years because the banks were reluctant to provide finances keeping in view the fate of existing power generation projects as a result of government’s failure to make timely payments. This messy situation turned even worse and the power producers were subjected to flood the banks for restructuring of their loans. Though the sources commended efforts of the present government for resolving circular debt issue by making overdue payments of nearly Rs500 billion to different power sector stakeholders, they said the required steps to streamline the power sector had not be taken. The payment by the new government did result in significant increase in power generation by existing plants and resultant reduction in power outages across the country. However, now we are back to square one, unfortunately, sources said. As per break-up of debt to Independent Power Producers (IPPs), the government is to pay Rs36.237 billion to KAPCO, Rs36.698b to Hubco, Rs4.192b to Rousch Power, Rs1.752b to Habibullah Coastal Power, Rs5.140b to Uch Power, Rs6.350b to AES Pakgen Power, Rs8.901b to Liberty TNB Gas, Rs405m to KEL Power, Rs5726m to AES Lal Pir Power, Rs1.042b to Fauji Power, Rs1.383b to Saba Power, Rs170m to Altern Power and Rs79m to Lareb Power. Similarly, the break-up of Rs44.446b the government owes to IPPs is Rs6.029b to Liberty Power, Rs6.001b to Nishat Power, Rs758m to Foundation Power, Rs5.858b to Nishat Chunian Power, Rs6.191b to Attock Gen, Rs5.145b to Atlas Power, Rs1.831b to Engro Power, Rs824m to Orient Power, Rs234m to Shydo Power, Rs4.958b to Hubco Narowal, Rs646m Halmore Power, Rs2.775b to Saif Power and Rs3.196b to Saphire Power.