CCoP seeks alternative to CDF arrangements
MUSHTAQ GHUMMAN
ISLAMABAD: The Cabinet Committee on Privatisation (CCoP) has directed the Power Division and Finance Division to devise an alternative to the Circular Debt Financing (CDF) arrangement to avoid an increase in the Government of Pakistan’s (GoP) equity through repayment of loans after privatisation, well-informed sources told Business Recorder.
The directions were issued while approving the transaction structure for three power distribution companies (DISCOs)—Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO).
Under the approved restructuring plan, the DISCOs will carve out the retirement benefits of retired employees into a single GoP-owned Special Purpose Vehicle (SPV) for all DISCOs. They will also enter into long-term lease-back arrangements for all land, with the terms and conditions to be negotiated with pre-qualified bidders. The cost of the lease will continue to be passed through the tariff.
According to sources, verified receivables will be settled against payables, while future liquidity injections by the Finance Division will be treated against verified receivables from the GoP and settled against payables to the Central Power Purchasing Agency-Guarantee (CPPA-G), in the sequence defined by the Power Division/Power Planning and Monitoring Company (PPMC).
Any surplus liquidity injection by the Finance Division will be treated as an advance subsidy payment.
The sources said the overdue portion of Development Support Loan (DSL) re-lent loans, including accrued mark-up, would be written off. However, the non-due portion of DSL re-lent loans would remain on the DISCOs’ balance sheets, with mark-up recovered through the tariff.
Reconciled receivables from associated undertakings, including WAPDA and GENCOs, would be settled against payables to CPPA-G in the sequence defined by the Power Division/PPMC, while unverified receivables would be written off.
Similarly, all outstanding GST receivables from the Government of Punjab (GoPb), along with electricity duty payables to GoPb, would be carved out into the GoP-owned SPV.
Regarding settlement of receivables against equity, the CCoP decided that receivables from the GoP not verified by the Power Division would be written off. IESCO-specific long-outstanding tax receivables from the Federal Board of Revenue (FBR) would also be written off, with IESCO required to withdraw any legal cases to conclude the matter.
The CCoP further decided that deposits for shares would be converted into share capital in accordance with the Companies Act, 2017.
Commenting on IESCO’s payables to CPPA-G, the sources said that, due to possible delays in payments to CPPA-G arising from delays in receipt of subsidy payments for Azad Jammu and Kashmir (AJ&K), such payables could be deferred on an interest-free basis over a period of 15 to 20 years.
The Finance Division has prepared draft pre- and post-restructuring balance sheets of the Batch-I DISCOs based on their audited financial statements for the period ended March 31, 2026.
FESCO: Following the proposed restructuring, FESCO’s total assets would decline from Rs408.31 billion to Rs285.20 billion, while total liabilities would fall from Rs320.39 billion to Rs222.30 billion. Equity would decrease from Rs87.92 billion to Rs62.87 billion. The changes reflect the carve-out of land, retirement pension obligations of retired employees and settlement, carve-out or write-off of selected GoP receivables and payables.
GEPCO: Total assets would decline from Rs335 billion to Rs212.79 billion, while total liabilities would decrease from Rs258.90 billion to Rs166.10 billion. Equity would fall from Rs76.10 billion to Rs46.69 billion following the proposed restructuring.
IESCO: Total assets would decline from Rs515.09 billion to Rs368.14 billion, while total liabilities would fall from Rs426.50 billion to Rs257.39 billion. However, equity would improve from Rs88.59 billion to Rs110.74 billion. The changes reflect the carve-out of land, retirement pension obligations of retired employees and settlement, carve-out or write-off of selected GoP receivables and payables.
The sources said FESCO, GEPCO and IESCO had been directed to increase their authorised share capital to Rs100 billion, Rs75 billion and Rs125 billion, respectively.
“An alternative solution to the CDF arrangement will be finalised in consultation with the Privatisation Commission to avoid an increase in GoP equity through repayment of loans by the GoP after privatisation. Till then, DISCOs will not record CDF allocation on their balance sheets,” the sources maintained.
The DISCOs have also been directed not to take any decision or action having a material impact on their financial or commercial position without prior consent of the Privatisation Commission.
