·         Circular debt in the power sector currently stands between PkR2.4tn-PkR2.5tn according to recent news flow. This signifies an increase of ~PkR200bn after the first 4 months of the fiscal year compared to the PkR2.25tn recorded at the end of June.

·         Recovery rate on billed amount for the CPPA-G system dropped to 90.5% in FY22, considerably lower compared to the 97.3% recorded in FY21. Moreover, as tariffs have been drastically increased in FY23TD, recovery rates are expected to drop even lower as the DISCOs scramble to make end-consumers pay up the hiked bills.

·         The recently announced Kissan package has further reduced the rate charged to agricultural tube-wells, which will lead to an increase in circular debt. Moreover, the increment in tariffs after the reversal of FCA deferral will cause losses in recovery for DISCOs, hence the expected reduction in Circular Debt after the reversal will be less than forecasts.

·         HUBC by far has the largest trade receivables and payables in IPPs, with PkR82.7bn and PkR45.8bn respectively. KAPCO on the other hand has a receivables/payables ratio of 3.6x, with PkR44.4bn in receivables and PkR12.3bn in payables.

·         Going forward, we can expect dividend payout capacity for IPPs to remain compromised as the quality of earnings is severely affected, unless the Govt. comes up with another debt payout program, which seems a far cry given the various other crises the country is facing currently.

Courtesy – AKD Research