Power Div.’s efforts marred by MoF complacency

MUSHTAQ GHUMMAN

ISLAMABAD: Finance Division’s alleged official inability to extend sovereign guarantee for new loans has reportedly marred Power Division’s efforts for additional facility of Rs 200 billion by reduce circular debt, well-informed sources told Business Recorder.

The volume of power sector circular debt including PHPL stocks stood at Rs 1.636 trillion, a potential threat to the country’s economy and power sector. The claims of incumbent government of reducing it substantially appear to be incorrect.

“Power Division has completed all codal formalities including identification of properties to be pledged with the consortium of banks against the loans but Finance Division is unable to arrange sovereign guarantee which is mandatory,” the sources added.

According to the agreement with International Monetary Fund (IMF), Pakistan cannot extend sovereign guarantees over and above a specific limit of debt to government ratio.

Insiders claim that Finance Division is now retiring some sovereign guarantees of small amounts to ensure that power sector loans are availed as early as possible because the present level of sovereign guarantees is higher than agreed with the Fund.

Another issue with consortium of banks was differences on interest, adding that banks are sticking to Kibor + 0.8 per cent (interest) whereas Finance Division is trying to convince them to accept Kibor + 0.7 per cent.

Power Division has returned term-sheets to the consortium comprising Meezan Bank Limited, Faysal Bank Limited, Bank Islami Pakistan Limited, Dubai Islamic Bank Pakistan, MCD Islamic Bank Limited and Al Baraka Bank Pakistan Limited (mandated lead arrangers).

“Finance Division is doing something on this issue and Power Division hopes that the sovereign guarantees issue will be sorted out within the next 15-20 days,” the sources maintained.

Under the Fiscal Responsibility and Debt Limitation Act of 2005, fresh guarantees should not exceed more than 2% of the national GDP in any fiscal year.

Another insider told Business Recorder that the amount of interest of Rs 10 billion per annum against new loans will be passed on to the consumers at the rate of Paisa 11 per unit in addition to existing Paisa 43 per unit, totaling Paisa 54 per unit.

The country’s power sector is one of the key issues facing the Pakistan economy and a source of concern for the IMF indicated by time bound structural benchmarks in the previous two Fund programmes - Standby Arrangement in 2008 and Extended Fund Facility in 2013 - which were not implemented.

Of the total Islamic loan of Rs 200 billion desired to be raised, payments will have to be made to PSO on account of payment for fuel supplies through Hub Power Company (Hubco), Kot Addu Power Company (Kapco) and Generation Companies (Gencos) in addition to payments for RLNG. Further, payment on account of energy to coal-fired power plants will be made. Payment for capacity to nuclear power plants and Wapda to discharge their balance liabilities towards NHP arrears of the province against Wapda’s invoices to CPPA-G will be also made. Balance payments will be made to IPPs against their outstanding capacity payments.