The unsustainable power sector circular debt has reportedly put the country''s financial system at risk as Finance Ministry has refused to extend budgetary support citing financial constrains, sources close to Secretary Finance told Business Recorder.
According to Secretary Power Division, Yousuf Naseem Khokhar, power sector circular debt was around Rs 570 billion last month in addition to Rs 452.33 billion PHPL current debt, totalling Rs 1.02233 trillion. "It is a very difficult situation. With such a huge circular debt, financial system of the country cannot be run," observed Prime Minister, Shahid Khaqan Abbasi while presiding over a meeting of the Economic Coordination Committee (ECC) of the Cabinet.
This amount is over and above Rs 480 billion paid to the power sector companies, gas companies and PSO which has now landed in National Accountability (NAB) for investigation. Power Division has handed over the entire record of Rs 480 billion circular debt paid by the former Finance Minister Ishaq Dar. The Auditor General of Pakistan had termed the payment of circular debt illegal.
On April 26 2018, the ECC discussed a summary moved by the Ministry of Energy (Power Division) seeking guarantee for syndicated term facility of Rs 80 billion for Power Holding Private Limited (PHPL) to raise commercial loans was approved by the ECC on March 7, 2018.
However, for maintaining power sector liquidity, further funds have not been released which include payment of Rs 14 billion against AJ&K subsidies and settlement on account of FTA GST Rs 14 billion. Although, Ministry of Finance has released budgetary support of Rs 20 billion with the condition of later adjustment, as they do not have any further fiscal space available to provide support to power sector under budgetary support head. The financial position of power sector is still at critical level due to various reasons including less than regulatory bench mark performance both in terms of losses and recovery, non-availability of subsidy, detail determination of consumer tariff( which has been notified now but whose impact will start coming in next few months). Moreover, higher energy sale due to significant increase in generation base, has also contributed towards further build-up of circular debt. Ministry of Finance had given concurrence to facilitate commercial borrowing against sovereign guarantee to the tune of Rs 50 billion subject to approval by the competent forum and completion of codal formalities.
The Power Division proposed to raise Rs 50-100 billion as deemed appropriate through commercial banks as a fresh financing facility to be arranged through PHPL which is a public sector entity without assets, and will be responsible for arranging the requisite loan. The amount will be utilized for the purposes of funding the liabilities of the Distribution Companies (Discos) towards Central Power Purchasing Agency Guaranteed (CPPA-G) limited and ultimately the sectoral e entities. Ministry of Finance will provide guarantee for the required loan amount.
The servicing of new facility as well as principal amount will be done through imposition of surcharge; however for the interim period of six months, the mark- up servicing will require GOP support which will be treated as equity in Discos.
The settlement done through this arrangement will primarily settle overdue payments in total payables of CPPA towards various sectoral entities. During ensuing discussion in the ECC, Secretary Finance, Arif Khan stated that circular debt of the power sector has increased enormously and Finance Division does not have fiscal space to provide support to power sector. However, Finance Division is ready to facilitate commercial borrowing against sovereign guarantee.
He stated that Rs 50 billion can be provide next week (paid on May 4, 2018) and remaining amount (Rs 50 billion) can be arranged from commercial banks in June 2018. The Minister for Power Division, Awais Leghari stated that an amount of Rs 100 billion is to be injected in the power sector to ensure liquidity in system.
He requested the ECC to provide Rs 100 billion by May 20, 2018. He further stated that lack of investment in technology in Discos is the main reason for decline in recovery of electricity bills.
The Minister pointed out that every year a substantial amount of Rs 50 billion is being incurred on power supply to tubewells in Balochistan, adding that there is a dire need to solarize these tubewells on urgent basis to save huge government money.
Prime Minister, Shahid Khaqan Abbasi who is also Minister for Energy and Chairman of the ECC observed that huge power sector circular debt is quite unsustainable. "It is a very difficult situation. With such a huge circular debt, financial system of the country cannot run," he added.
According to the Prime Minister, the issues of power sector were discussed in detail at the CCI meeting, adding that it will be appropriate that gas and power sectors be transferred to provinces. Finance Minister, Dr Miftah Ismail, stated that Finance Division will arrange Rs 50 billion by next week and remaining Rs 50 billion before May 20, 2018 to clear power sector liabilities. The amount will be disbursed as per priority determined by the CPPA.