Pak Arab Refinery Limited (PARCO) — Management of Circular Debt

This case describes how significant debt was built up in Pakistan among the private- and public-sector energy and power-generation companies, which were some of the country’s largest organizations. An unexpected slowdown in recovery of payments created debt that affected corporate business operations and the Pakistani economy as a whole. The case discusses the energy and power sectors, along with the reasons for the circular debt. The Pakistani government was heavily involved in regulating the energy and power sectors; to respond to high oil prices, a subsidy was provided in 2008 to keep the price of diesel low. The government, however, had not created an effective plan to recover these funds, and when large public-sector enterprises such as Pakistan International Airlines did not pay their bills, no action was taken. The focus of this case is on resolving the very large amounts of debt that had accumulated in various energy companies. A secondary analysis can explore the impact of regulation on the operations of oil companies.