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What’s behind Pakistan’s circular debt and why you should care
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Currently, Pakistan’s circular debt stands at a whopping Rs1.4 trillion. Why should you Pakistani's care? Because you may end up paying for it. Watch our explainer to find out why. • #CircularDebt #PakistanEnergyCrisis #PakistanEconomy #Explainer • ------- • To explore more stories on startups and innovation in Pakistan, visit our website: www.vcast.online • Or find us on social media: • facebook.com/vcastonline • instagram.com/vcastonline • Write to us on [email protected] with any queries regarding our content and opportunities for partnerships. • ----- • More on Pakistan's circular debt ... • The menacing source of this burden is the relentless IOUs that keep piling up among the players in the energy sector supply chain. This includes power distributors, power producers, as well as oil and gas companies, such as PEPCO (Pakistan Electric Power Company), IPPs (Independent Power Producers), K-Electric, Pakistan State Oil and Southern Sui Gas. • The origin of debt seems simple: When you cannot afford to pay back what you owe, you incur a debt. • But what if it wasn’t your fault in the first place? • • What if you couldn’t pay what you owed, because someone else couldn’t pay you? • This is the chain of IOUs that has dominated discussions on energy financing in Pakistan since 2007, which was around the time international oil prices went up. • As importing oil became more expensive, the government at the time did not pass on the price increase to the customers, leading to an imbalance between actual money owed to fuel companies, and money available to collect from the end consumers. The fact that a lot of energy was wasted during transmission (and still is), and a lot of people didn’t pay their bills (and still don’t), only compounded the problem. • Hence began the vicious cycle where the government and consumers didn’t pay the power-distribution companies, who couldn’t pay the power-generation companies, who couldn’t pay the fuel companies, who couldn’t buy more oil, leaving the government no choice but to borrow even more money, only for the cycle to repeat itself, with even greater numbers. • We did not get here overnight. Those in power have had many chances to address the issue since it became a serious threat in the late 2000s. In December 2009, this figure was eight times less than it is today at Rs90 billion. • Still confused? Watch this video to find out how we got to Rs1.4 trillion and why all Pakistanis should care about it. • For more explainers on Pakistan's economy visit vcast.online
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