Making a workable plan to pay the circular debt stock on the CPPA-G books and to reduce the built up of flows is top of Ministry of Energy’s agenda. A solid plan is also imperative for the continuation of the IMF programme; if the government doesn’t want to pass it all through a tariff increase for the consumers. That said, partial increase in tariffs in inevitable.
There are some ideas circulating on the equity swap and dividend payments to clear the part of debt. The concept of equity swap is being initiated by PSO for its pending Rs80 billion dues from gencos. A few years back (in the last regime), CPPA-G paid Rs80 billion to Genco 3; but the amount was used in Nandipur or other gencos. PSO hasn’t received it and Gencos don’t have the cash to pay.
Since PSO is stuck, its management came up with an option to get some gencos’ assets in lieu of the pending amount. The first question is to ask how can the money due for fuel payment to PSO be used for capital investment in gencos? Government has left this for FIA and other investigative bodies to find out. The pressing need is to clear PSO dues one way or the other.
The money was paid to Genco 3 which has Nandipur, Guddu and Muzaffargarh plants in it. Some of these are on the privatization list, and clearly, nothing can be transferred to PSO without having the Privatization Commission on board. Then there is the question on the valuation of the assets to be transferred. For that, financial advisors need to be hired. Another option is to pay PSO through Gencos Holdings. This company owns all the gencos. Can any other asset of Gencos Holding be passed on to the PSO? All these options are to be evaluated and relevant ministries and departments are needed to be consulted before any decision can be made. The process is initiated and it will take its sweet time to complete.
With this PSO’s proposal, another idea is being floated where cash initiation by one or more of the public sector entities can knock off some of the circular debt through dividend or equity swap arrangement. There precedence for such a move. In 2013, Rs80-90 billion dividend of E&P companies was used as subsidy to clear power sector circular debt. It is pertinent to note that the only dividend of government’s holding for E&P companies can be used as rest of the dividend is to be paid to others’ holdings of listed companies shares.
The idea is to use cash on the balance sheets of companies like OGDC. And since E&P companies are not leveraged, loan can be taken to pay the dividend, if any company is short of cash. The idea is to partially clean the value chain by completing the loop. Three companies – OGDC, PPL and GHPL, have overall equity of about Rs1.2 trillion with over 50 percent in trade debts – receivables form others. The receivables of OGDC alone stand around Rs350 billion. There is almost zero debt on the books and these trade debts can be used to get bank financing for paying dividends, in addition to cash these companies are holding.
For example, if OGDC pays a dividend of Rs100 billion, Rs67 billion will be government’s. This amount can be used by the government to clear dues of CPPA-G to IPPs/Gencos to PSO to refineries and back to OGDC. The other way round is payment by IPPs/Gencos to SSGC/SNGPL and to OGDC. Thus, cash initiation by OGDC can clean part of the value chain.
But it’s easier said than done. The to-be-dividend of OGDC is the property of Finance Ministry. Has fin-min already budgeted it? The company is not paying adequate dividend due to its cash flow problems; but it will eventually pay up. It is an opportunity loss for fin-min. Will the Q Block let this go? The counter argument is that Q Block has to pay cash to clear circular debt and may as well pick this option.
The second option is of equity swap where other companies’ shares can be bought by OGDC to settle dues. Here the issues are of valuation of assets and the involvement of Privatization Commission. Plus, the OGDC’s non-government holders are to be on board. Then there is a third option where a circular debt surcharge can be imposed on petrol and diesel. This will have its own complications. Is it justifiable to charge losses in power sector from petroleum consumers? And this will result in increase in petroleum prices – politically tough decision.
All these options are there and the SAMP on Power is being tasked to map payables and receivables of various companies in the energy chain and to come up with options to knockoff through above mentioned solutions. This will take two weeks and then the relevant authorities would be involved to make a decision acceptable to all. That will take another month or two.
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