ISLAMABAD: The Boards of the Capital Market Infrastructure Institutions (CMIIs) — Pakistan Stock Exchange (PSX), National Clearing Company of Pakistan Limited (NCCPL) and Central Depository Company (CDC) — have granted an exemption from applicable taxes on the sale and purchase of Pakistan Energy Sukuks under the government’s approved circular debt management plan of Rs 1.225 trillion, well-informed sources in CPPA-G told Business Recorder.
Last month the government approved a summary by the Power Division for the issuance of a Government of Pakistan guarantee amounting to Rs 659.646 billion for circular debt financing of Rs 1.225 trillion.
According to PSX CEO and MD Farrukh H. Sabzwari, the management of the CMIIs (PSX, NCCPL, and CDC) carefully reviewed the proposal and the strategic context of this nationally significant initiative. He stated that PSX appreciates the Federal Government’s plan to settle the circular debt by 2031 and recognizes the essential role of CMIIs in facilitating the process.
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He further noted that, in line with the CMIIs’ commitment to supporting the resolution of circular debt, the Boards of Directors of PSX, NCCPL, and CDC—on the recommendations of their respective CEOs—approved a waiver of all applicable fees and margin requirements for the transaction. The waivers include: (i) a full waiver of margin requirements for both Sukuk holders and CPPA-G for the duration of the transaction; and (ii) a waiver of all applicable fees for participants (buyers and sellers) for this transaction through PSX’s Negotiated Deal Market (NDM) mechanism. “This waiver is extended to ensure the capital market institutions’ support to the economic stability and strategic objectives of Pakistan,” PSX stated.
Earlier, in a letter to the PSX Managing Director, CPPA-G CEO Rihan Akhtar stated that the Federal Government has approved a plan to settle the power sector’s prevailing circular debt by 2031. As part of this plan, the government has approved circular debt financing from 18 banks. Key features of the financing include: (i) Shariah-compliant financing of Rs 1,225 billion at a profit rate of 3-month KIBOR minus 0.9%, repayable in 24 instalments, with no arrangement, agency, or other fees payable to the Investment Agent bank; (ii) repayment of Rs 660 billion in debts parked with Power Holding Limited (PHL), with the remaining Rs 565 billion to clear overdue payables to IPPs; (iii) repayment of the financing through a Debt Service Surcharge (DSS) imposed under Section 31(8) of the NEPRA Act, 1997; and (iv) CPPA-G, operating as a State-Owned Enterprise (SOE) under the SOE Act, has been mandated to perform Public Service Obligations under Section 7.4 read with Schedule II of the Act.
The Shariah-compliant financing agreements have been executed under the following structures: (i) an Ijara SLB facility of up to Rs 825 billion against assets of Distribution Companies (DISCOs); and (ii) a Bai-Muajjal facility of up to Rs 400 billion.
The CPPA-G CEO stated that, due to limitations in the availability of assets required to fully collateralize the facility, timely execution of the Bai-Muajjal financing is critical.
The transaction structure requires the purchase of Pakistan Energy Sukuk (PES) I & II. Under the approved Shariah framework, CPPA-G, acting as the agent of the Investment Agent, will purchase PES I & II from existing Sukuk holders. Pursuant to the Bai-Muajjal arrangement, the Sukuks will then be transferred to CPPA-G. Upon transfer, the Sukuks will stand redeemed, and CPPA-G will repay the purchase price in 24 quarterly instalments in accordance with the Bai-Muajjal Agreement.
According to the CEO, approximately 99% of existing Sukuk holders have consented to the redemption of PES I & II. The settlement at the Pakistan Stock Exchange is being structured through the NDM mechanism at T+1 and is ready for execution. However, the PSX margin requirements and cumulative transaction-related costs of PSX, NCCPL, and CDC — when applied to the aggregate Sukuk value of Rs 400 billion — would impose disproportionately high costs on all participants.
Copyright Business Recorder, 2025
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