4. Methodology:
4-Research Design and Methods:
4.1 Research Approach:
Mixed-Methods Approach:
Utilize a mixed-methods research approach to combine qualitative and quantitative
data.
4.2 Data Sources:
4.2.1 Secondary Data:
Government Reports:
 Analyze official reports from government agencies related to the petroleum
sector.
 Extract data on policies, regulations, and financial performance.
Industry Publications:
Review industry publications, journals, and research articles on circular debt.
Incorporate relevant data and insights into the study.
Financial Statements:
Examine financial statements of key players in the petroleum sector.
Extract quantitative data on revenue, expenditures, and debt levels.
4.3 Data Collection Techniques:
4.3.1 Qualitative Data Collection:
Interview Protocol:
Develop a structured interview protocol with open-ended questions.
Ensure consistency across interviews while allowing flexibility for exploration.
4.4 Justification of Research Approach:
Qualitative Insights:
Qualitative methods provide a understanding of circular debt dynamics.
Uncover underlying issues, perspectives, and potential solutions from stakeholders.
Quantitative Analysis:
Quantitative methods allow for statistical analysis of financial data.
Provide numerical evidence to support or challenge qualitative findings.
4.4.4 Stakeholder Engagement:
Inclusive Perspective:
Involving stakeholders through interviews and focus groups ensures an inclusive
research process.
Incorporates diverse perspectives to generate more representative findings.
4.4.5 Rigorous Analysis:
Triangulation:
Triangulation of data sources enhances the rigor and validity of the study.
Consistent findings from different methods strengthen the overall research outcomes.
By employing a mixed-methods approach, this research aims to provide a robust
analysis of circular debt in the energy/ petroleum sector, combining qualitative insights
with quantitative evidence for a comprehensive understanding and actionable
recommendations.
5. Circular Debt in the Power/ Petroleum Sector:
Briefly review the profile of the energy sector in Pakistan:
1. Suppliers of primary energy: These include (a) oil/gas exploration companies
(e.g., OGDCL and PPL), (b) oil refineries (e.g., ARL, Parco), and (c) distribution
companies in gas (e.g., SNGPL, SSGC) and oil (e.g., PSO, Shell). All
companies in this segment are involved in the supply of primary energy to power
generation companies.
2. Power generation and distribution companies: These comprise the Karachi
Electric Supply Company (KESC) (a vertically integrated company),
Independent Power Producers (IPPs) (e.g., Hub Power Company and Kot Addu
Power Company), captive power producers, rental power producers, WAPDA
Hydel, and the Pakistan Electric Power Company (PEPCO). PEPCO is the core
entity in the energy sector. It is an umbrella institution managing power
generation companies (GENCOs), the National Transmission and Despatch
Company (NTDC), and power distribution companies Dynamics of Circular Debt
in Pakistan and Its Resolution 63 (DISCOs)
Status of circular Debt in Pakistan:
By the end of June 2023, the power sector's circular debt had risen to Rs. 2.31 trillion
from Rs. 2.25 trillion at the end of the previous fiscal year FY-2022, which was
Rs.
57 billion.
Problems:
The problem of circular debt in the energy sector is a long awaited issue. The Asian
Development Bank Report attributes the circular debt flows to the following:
a.
b.
c.
d.
Distribution Companies - DISCOs’ inefficiencies - 31%,
delayed tariff adjustments - 35%,
financial costs - 16%, and
unbudgeted subsidies - 18%.
Two principal reasons for the circular debt problem:
1. First, consumer tariffs were insufficient to recover the rising costs of power
generation and
2. The government (due to fiscal constraints) was not compensating
Successive governments have strived hard to bring circular debt down but the issue
largely remained uncontrolled. In FY2013, circular debt was around Rs 450 billion
which reached to Rs 1148 billion in 2018. According to the data of the Central Power
Purchasing Authority (CPPA), circular debt stood at Rs 2467 billion by March 2022.
This implies that circular debt is equivalent to 3.8 percent of Pakistan’s GDP and
represents 5.6 percent of Pakistan’s government debt. Growing at the current pace
and if it is allowed to grow unaddressed, it is estimated to reach Rs 4 trillion by 2025,
demanding the urgency of reforms in the power sector.
Way forward:
In the past, Pakistan's economic progress has been limited by energy sector obstacle.
Pakistan's energy needs are growing, and over the next several decades, there will be
a significant increase in the country's energy consumption. Resolution of the circular
debt crisis has remained a focus during successive regimes as various regulatory,
strategic, and operational measures have been undertaken from time to time. Some of
the key measures are as follows:
1. Resolving circular debt in power/energy sector is essential for survival of our
companies as well as our country because it will relieve supply limitations. The
work is difficult, as it must first settle the outstanding balance of circular debt in
2.
3.
4.
5.
order to prevent additional accumulation of circular debt receivables. One
important lesson is that electricity/ gas subsidies can only be maintained if they
are specifically acknowledged in the fiscal budget; otherwise, the indirect costs
of these subsidies will continue to negatively impact the economy.
The strategy to resolve circular debt must focus not only on reducing the
outstanding stock of circular debt but also on preventing its accumulation.
There is need of proper adoption plan and its implementation at higher level to
reduce the circular debt.
Companies should adopt and implement latest technologies in order to reduce
cost of doing business that helps to reduce input cost.
Govt should invest on alternative energy source.