PD urged to help recover FRLs from PSEs

Secretary Finance and Economic Affairs Division, Arif Khan has reportedly sought help from the Power Division for recovery of Foreign Relent Loans (FRLs) from Power Sector Entities (PSEs) which will touch Rs 229 billion up to June 30, 2018, after Pakistan Electric Power Company (Pepco) barred companies from repaying these loans, well-informed sources in the Economic Affairs Division (EAD) told Business Recorder.
This amount is over and above Rs 520 billion inter-circular debt and Rs 300 billion of Discos, shown in the books of Power Holding Company Limited (PHPL). Power sector's receivables have crossed Rs 800 billion. Secretary Power Division, Yousuf Naseem Khokhar told this scribe that negotiations between the Power Division and Finance Division are underway on the claims of subsidy which will be used to clear some claims of circular debt. Another senior official stated that the amount of power sector subsidy is around Rs 92 billion against supply of electricity to Azad Kashmir and FATA.
Given the background, the sources said, in a meeting held in Economic Affairs Division (EAD) on May 5, 2017 for pursuance of the recovery from PSEs, it transpired that a considerable amount has accumulated against these entities. The PSEs argue that a huge amount on account of Tariff Differential Subsidy (TDS) is payable by the GoP to them, and repayment of FRLs may be adjusted by the Ministry of Finance against these payables.
To resolve the issue, the following decisions were taken: (i) Power Division will immediately initiate a summary regarding mechanism for the payment of subsidy on account of AJ&K proposed by Finance Division for approval of ECC of the Cabinet; and (ii) upon approval of the summary, ECC will issue non-cash sanction for adjustment of GoP (EAD's) claim to the extent of PSEs subsidy amounting to Rs 67 billion on account of payment of tariff differential cost of electricity being supplied to AJK government.
According to sources, views of Power and Finance Divisions were sought on May 24, 2017. The Finance Division offered its views in June 2017, wherein they declared the claim as disputed. Power Division' maintained that recovery of Foreign Relent Loans and guarantee fee outstanding against various power sector entities have not been received despite repeated requests by the EAD. Later on several reminders were also sent to the concerned power sector companies.
As a result of regular pursuance by the EAD to deposit the overdue amount against FRLs, the Deputy Manager (Finance) Project Monitoring Unit (PMU), Gujranwala Electric Power Company (Gepco) sent a copy of Director General (Finance) Pepco's letter containing instructions that no Discos' are to make payment to GoP against DSL of FRLs; the letter further stated that that Ministry of Energy is being approached for adjustment of these loans by the Ministry of Finance against outstanding dues of Tariff Differential Subsidy (TDS), General Sales Tax (GST) subsidy and AJ&K receivables.
"These state of affairs indicates that the EAD's pursuance of PSEs individually will not yield the desired results in view of instructions from Pepco directing Discos to cease debt servicing of their FRLs," the sources quoted Arif Khan as saying. As per relending terms "for the default cases of recovery of relent loans, late fee charges will be levied on the due installment (principal + interest) at the rate of 1 per cent during the first year of default, 3 per cent during the 3rd year of default and so on." Therefore, besides the overdue amount of Rs 229 billion, power sector entities are also liable to pay late fee charges which, will be calculated and intimated to them after determining actual period of default on payment of overdue amount against each foreign relent loan by the PSEs.
The sources further stated that recovery of foreign relent loans from power sector entities is not tied with any kind of payments outstanding against GoP. As such, instructions for stopping the debt servicing of FRLs would be a violation of the relending policy. Arif Khan has requested his counterpart in the Power Division to look into the matter for expeditious finalization of debt servicing of FRLs of all power sector entities so as to avoid further accumulation of arrears, late fee charges and non compliance of the commitment for debt servicing by the relent borrowers.