Decision will give govt two more years to repay loans taken to cut circular debt
ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government on Wednesday approved the rescheduling of Rs166.5 billion in loans that had been obtained from banks to retire power-sector circular debt after defaulting on nearly Rs28 billion worth of principal repayments due to limited fiscal space.
The decision of rescheduling the loans would give the government two more years to repay the principal loans, although it was regularly paying interest charges after recovering from the honest electricity consumers.
Headed by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh, the Economic Coordination Committee (ECC) of the cabinet decided to roll over the debt for two more years. The ECC also desired that the cost of protecting the China-Pakistan Economic Corridor (CPEC) and other important installations by the military should be made part of the regular defence budget instead of meeting it through supplementary grants.
Out of the power-sector loans of Rs166.5 billion, an amount of Rs136.5 billion had been borrowed from a syndicate of banks in December 2016. Its principal payments had been due since December last year and the government defaulted on payment of Rs22.7 billion, the ECC was informed.
The second loan facility of Rs30 billion had been obtained in March 2017 and its first principal repayment of Rs5 billion became due after March this year but the federal government could not return the amount.
Owing to the limited fiscal space and liquidity, the Power Division and Finance Division had no capacity to pay principal loan instalments of Rs27.74 billion, according to the Ministry of Energy.
It stated before the ECC that fresh financing facilities were being negotiated by both the stakeholders.
The default on repayment of the principal amount showed that like the Pakistan Peoples Party and the Pakistan Muslim League-Nawaz governments, the PTI administration too was unable to financially revive the power sector despite increasing electricity tariffs twice. The government was already charging a debt servicing surcharge from the electricity consumers through monthly bills to tackle the circular debt.
Originally, these loans had been obtained in 2012 for two years. In October 2014, the ECC rolled over the debt for two years after the government could not make repayments.
These loans were rescheduled again in December 2016 and now it is the third rollover, which suggests that plans to address fiscal woes of the private sector could not achieve desired results. The government was paying interest to a consortium of seven commercial banks, which was 2% above the Karachi Interbank Offered Rate (Kibor).
The ECC approved the issuance of sovereign guarantees by the government in respect of the syndicated term finance facility amounting to Rs166.5 billion for the power sector.
Pakistan Electric Power Company’s (Pepco) state of the industry report showed that during the last fiscal year, the outstanding receivables of the power sector surged from Rs896.1 billion in June 2018 to Rs1.145 trillion in June 2019. There was an increase of Rs249 billion or 28% in the last fiscal year.
The ECC approved a proposal of raising financing facilities of Rs136.454 billion and Rs30 billion for adjustment of the existing financing facilities of Power Holding Limited (PHL) for the purpose of funding repayment liabilities of power distribution companies on the terms and conditions approved by the Finance Division, according to a statement issued by the finance ministry.
Earlier, the ECC was told that terms and conditions of the PHL financing facilities had a five-year tenure, inclusive of a two-year grace period which had been completed, and the instalments on account of the principal portion had become payable, it added.
Under the latest arrangement approved by the ECC, the principal instalment payments would be deferred for a further two years from the date of execution of the fresh facilities and this would be a cash neutral transaction as the disbursement of fresh facilities would be used for adjustment of the outstanding principal portion of the existing PHL financing facilities of Rs136.454 billion and Rs30 billion, stated the finance ministry.
The ECC directed the Ministry of Defence to make the cost of Special Security Division being set up for CPEC security and internal duty security allowance part of the regular defence budget.
The Ministry of Defence on Wednesday requested the ECC to approve Rs11.2 billion in supplementary grant for meeting these expenses.
The defence ministry requested supplementary grant of Rs6.2 billion for paying the recurring cost of the Special Security Division (North) and another grant of Rs5 billion to pay the internal security duty allowance to the army troops deployed on the western border.
The ECC discussed the matter and asked the Defence Division to bring it up in the next meeting after having discussed and finalised with the Finance Division the mode of arranging funds for the supplementary grants.
The ECC also approved a proposal of the Petroleum Division for revising margins of oil marketing companies (OMCs) and dealers on sale of motor spirit (MS) and high-speed diesel (HSD) on the basis of annual average of the Consumer Price Index (General).
The ECC decided that in future the margins of OMCs and dealers would be worked out on the basis of average annual inflation of a fiscal year and also tasked relevant stakeholders, including the Petroleum Division, Finance Division, Planning Division, Industry and Production Division, Bureau of Statistics and Ogra to finalise recommendations within two months and resubmit the case to the ECC. The increase in margins would further increase the prices of both the fuels.
Published in The Express Tribune, November 7th, 2019.