ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet which is scheduled to meet Wednesday (May 6) will approve conversion of Rs 136.5 billion debts of Power Holding Company Limited (PHPL) into public debt as per agreement with World Bank, sources in the Finance Division told Business Recorder.

PHPL is a wholly-owned government entity, established for the purpose of securing financing for the power sector. It was incorporated under the Companies Ordinance, 1984 on 24th June 2009. PHL is a Special Purpose Vehicle (SPV) to park long-term debts of the government owned power sector. PHPL regularly borrows from commercial banks, the debt is guaranteed by Ministry of Finance, the proceeds are used to pay off liabilities of power sector. PHPL was used mainly because the power sector could not function with owning heavy amounts of payables towards IPPs and others, the obligation to pay IPPs is also guaranteed under the government policy. The markup payments of the borrowing are passed on to the paying electricity consumers to pay banks. However, no cash flow exists to service the principal amount of the debt. However, none of the facilities obtained by PHPL have been retired.

The amount of circular debt is Rs 804 billion. In order to settle the past circular debt, Circular Debt Management Plan (hereinafter as CDMP) was prepared by the Power Division and approved by the Cabinet. The CDMP describes the mechanism to address the circular debt in power sector and how to control the flows during the period by curbing electricity theft, improve recovery, lower generation and transmission losses. The CDMP also highlighted the key reasons of CD as sectoral inefficiencies, discrepancies in tariff regime and regulatory issues.

In order to reduce the circular debt stock, Power Division has proposed the following scenarios for implementation;(i) no retirement of stock (neither PHPL nor CPPA-G payables);(ii) upfront retirement of all PHPL loans by June 30, 2020, no reduction of CPPA-G payables; (iii) retirement of PHPL loans when they mature, no reduction of CPPA-G payables; (iv) upfront retirement of all PHPL loans by June 30, 2020, including Rs 200 billion of CPPA-G payables; (v) retirement of PHPL loans when they mature, including 4-year Rs 200 billion Sukuk CPPA-G payables and ;(vi) retirement of PHPL loans when they mature, including retirement of Rs 200 billion CPPA-G payables on June 30 each year FY20, FY21 and FY22 (total Rs 600 billion)

The CDMP envisages that Finance Division is to take the PHPL’s existing GoP guaranteed borrowings as public debt over the period from FY 2019 to FY 2023 or if so, over the extended period. In this connection, maximum amount of PHPL’s debt to be converted into public debit. Finance Division will make repayments to the lenders to the extent of principle amount as and when due through cash or instruments.

PHPL shall continue to pay the interest recovered through tariff and any shortfall will either be met through further debt surcharge by through amendment in NEPRA Act.

Power Division, sources said, has proposed that shifting of most expensive loan from the books of PHPL to Government of Pakistan be allowed. The sources said, Rs. 136.454 billion loan is proposed to be taken up in the CFY 2019- 2020 and issue a notification in this regard. The other loans will be considered in the following financial years accordingly.

The ECC will also allow PHPL to arrange fresh loan of Rs 41 billion for the purpose of adjustment/settlement of the existing PHPL finance facility of Rs. 41 billion.—MUSHTAQ GHUMMAN