Charter of the Economy The responsiveness of electricity demand to changes in the level of tariffs over time has been difficult to quantify because of the presence of power outages. However, now with excess capacity, it is possible to get a handle on the price elasticity of demand. The World Bank’s Enterprise Survey has been used to quantify the price elasticity of industry. It is estimated at-0.57 in Pakistan. Other studies have estimated the industrial price elasticity at-0.46 and that of agriculture at-0.79. Similarly, the domestic elasticity is-0.85. As mentioned earlier, a price increase of Rs 1.95 per Kwh in the base electricity tariff has recently been announced. This is equivalent to an escalation of almost 15 percent on the overall average tariff. It is likely that the consumption of electricity will fall significantly. Consequently, the rise in revenues is likely to be limited. Mushroom Growth in Circular Debt The circular debt of the power sector has grown exponentially at the annual rate of 29 percent since 2015-16, as shown in Table 23.10. At the end of 2019-20 it was Rs 2150 billion. This is drastically affecting operations in the power sector. There are two primary sources of circular debt. The first is payment due to power generation companies, especially to the IPPs in the form of capacity charges. This stands at Rs 994 billion and has grown annually at the rate of 37 percent. Table 23.10: Sources of and Magnitude of Circular Debt Due for Payments to Power Generation Companies 2015-16 223.7 2016-17 288.1 Change 64.4 Energy Payable Swap by GOP 368 through loan by Commercial Banks to Power Holding(Pvt) Ltd. 439.0 Change 71 Others 97.4 90.9 Change-6.5 Total 689.1 818.0 Change 128.9 Source: NEPRA State of Industry Report 2017-18 441.4 153.3 582.9 143.9 102.4 11.5 1126.4 308.4 (Rs in Billion) 2018-19 2019-20 694.3 994.0 252.9 805.8 299.7 1003.3 222.9 153.1 50.7 1653.2 526.8 197.5 188.1 35.0 2185.4 532.2 The second source is energy payable swap by GOP through loan by commercial banks to Power Holding(Pvt) Ltd. This has exceeded 1 trillion Rs and stands at Rs 1003 billion. The annual growth rate is 25 percent. Efforts will have to be made by the Federal Government to retire a large part of the circular debt on a top priority basis. Otherwise, the risk is disruption in operations of the sector due 226