MUSHTAQ GHUMMAN

ISLAMABAD: Finance Division and Power Division are reportedly in negotiations with the commercial banks to raise fresh financing facility of Rs 50 billion to pay off liabilities of Pakistan State Oil (PSO) and Independent Power Producers (IPPs), well informed sources told Business Recorder.

The Abbasi-led government had approved this proposal during its last days but the Finance Ministry could not arrange the financing as the banks were reluctant to give the amount on the plea that they have already substantial exposure in power sector. The government will impose a surcharge of 50 paisa per unit to recover this amount from consumers.

However, Finance Division and Power Division continuously pursued banks that have ultimately expressed their willingness to extend Rs 50 billion in two tranches. The banks are expected to send term sheets to the Power Division next week.

The sources said, Power Division in a separate summary moved by the Ministry of Energy (Power Division) seeking guarantees for syndicated term finance facilities of Rs.80.00 billion for Power Holding (Private) Limited to raise commercial loans was approved by the ECC. The loan amount of Rs.80.00 billion has been disbursed in accordance with the decision of the ECC. However, for maintaining power sector liquidity, payment of Rs.14 billion against AJ&K subsidies and settlement on account of FATA GST Rs.14.00 billion have not yet been released.

Although Ministry of Finance has released a budgetary support of Rs.20.00 billion with the condition to be adjusted later, they have stated that they do not have any further fiscal space available to provide support to power sector under budgetary support head.

In light of the forgoing and as per advice of the Ministry of Finance, another summary moved by the Power Division seeking guarantees for syndicated term finance facilities of Rs.50-100 billion for Power Holding (Private) Limited to raise commercial loan was approved by the ECC on April 26, 2018. The loan amount of Rs.50.00 billion has been disbursed in accordance with the decision of the ECC while balance of Rs.50.00 billion was in the process of execution.

The financial position of power sector was still at critical level due to various reasons including less than regulatory benchmark performance both in terms of losses and recovery, non-availability of subsidy, detail determination of tariff (which has been notified now but whose effect will start coming in the next few months). Moreover, higher energy sales due to significant increase in generation base, has also contributed towards build-up of circular debt. This was discussed in a meeting held in the office of the Minister of Finance, on May 22, 2018, in the office of FM attended by the Ministers of Finance and Power Division, Secretary Finance Division, Additional Secretary Power, Joint Secretary Power Finance where it was decided to seek another loan for the power sector, as no further fiscal spice was available to provide support to power sector under budgetary support head.

The Power Division proposed to further raise Rs.50.00 billion through commercial banks as a fresh financing facility to be arranged through Power Holding (Private) Limited (PHPL). PHPL is a public sector entity without assets and will be responsible for arranging the requisite loan. The amount will be utilized for the purposes of funding the repayment liabilities of the Distribution Companies towards Central Power Purchasing Agency (Guarantee) Limited and ultimately the sectoral entities. Ministry of Finance will provide government guarantee for the requisite loan amount. The servicing of new facility as well as principal amount will be done through imposition of surcharge, however for the interim period of six months, the markup servicing will require GoP support and the same will be treated as equity in the Distribution Companies. The settlement done through this arrangement will primarily settle overdue payments in the total payables of CPPA-G towards various sectoral entities.

The servicing of all the facilities available at PHPL will yield a financial cost surcharge of Rs 1.15 to Rs 1.75/KWh. The servicing of the new proposed facility as well as the principal amount will be done through imposition of surcharge @ Rs.0.55/kwh after approval of Nepra. For the interim (6 months) or tariff determination whichever is earlier, the markup servicing will require GoP support and the same will be treated as GoP equity in Discos.