MUHTAQ GHUMMAN
ISLAMABAD: Power Division is completely in the dark about Rs 250 billion fresh loans for the power sector, mentioned by the Prime Minister’s Advisor on Finance and Revenue, Dr. Abdul Hafiz Shaikh in his press conference on November 11, 2019.
“We are baffled at what the Finance Advisor stated in his press conference flanked by other members of the economic team as such plan was neither shared with Power Division nor was it proposed or initiated by the Power Division,” said a senior official on condition of anonymity.
According to the official, Power Division has already completed homework for issuance of Sukuks of Rs 200 billion against properties of Discos, Gencos and Wapda which is expected to be issued next month.
Dr. Hafeez Shaikh had claimed during the press conference that the government can now extend guarantee beyond Rs 1.6 trillion for the power sector; and that the International Monetary Fund (IMF) during the first review allowed the government to raise an additional Rs 250 billion to pay IPPs aimed at retiring the circular debt.
On October 26, 2019, Business Recorder carried a story in which it was revealed that the government will seek IMF’s approval for issuance of fresh Sukuks worth Rs 200 billion meant to reduce the stock of historically high circular debt.
In September 2019, Minister for Power and Petroleum Omar Ayub Khan stated that expensive power sector loans are being replaced with Sukuk which will lessen the financial impact on the economy. Pakistan’s circular debt is of about Rs 1.6 trillion, of which half the amount is parked on the books of PHPL which, according to the IMF, is a potential threat to Pakistan’s macroeconomic performance.
The government has also increased power tariff in accordance with the agreement with the Fund. Nepra accorded approval to increase in tariff a couple of days after the public hearing, in the best “national interest” as described by the incumbent Chairman Nepra.
The issue of sovereign guarantee for fresh Sukuks of Rs 200 billion has been raised with the State Bank of Pakistan.
Meezan Bank Limited, Faysal Bank Limited, Bank Islami Pakistan Limited, Dubai Islamic Bank Pakistan, MCD Islamic Bank Limited and Al Baraka Bank Pakistan Limited are the mandated lead arrangers.
Power Division has completed all codal formalities including identification of properties to be pledged with the consortium of banks against the loans but the issue of guarantees is still unresolved.
The sources further stated that Finance Division has retired 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. The actual stock of loans is available with the central bank.
Following several years’ decline in the flow of circular debt in the power sector, new arrears accumulated during FYs 2018 and 2019 have reached close to Rs 800 billion (around 2 per cent of GDP). Delays in adjusting tariffs, reversal of policies, such as revenue shedding- and the non-payment of implicit subsidies by the government have been the main contributors to the increase in arrears.
Of the total Islamic loans 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 also be made. Balance payments will be made to IPPs against their outstanding capacity payments.
Recently, Pakistan Energy Sukuk-I (PES-I) issue of Rs200 billion got listed on the Pakistan Stock Exchange (PSX). PES-I is the largest Shariah-compliant financial instrument ever listed on a stock exchange in Pakistan. These Sukuks were approved during last financial year.
