ISLAMABAD: The federal government will provide Rs30 billion to the power sector to partly offset the impact of the vicious circular debt — a decision that will ensure thermal power plants keep running and vehicles remain on roads, though only temporarily.
The decision was taken in a meeting between Finance Minister Dr Abdul Hafeez Shaikh and officials of Pakistan State Oil (PSO). Petroleum ministry representatives were also present.
The PSO management had sought Prime Minister Yousaf Raza Gilani’s intervention after its receivables from power generation companies swelled to Rs158.2 billion. PSO, the largest furnace oil supplier to the power sector, was on the verge of default on international oil payments.
“Within this week, the government will inject Rs30 billion into the system and out of that PSO’s share will be approximately 80 per cent,” said Petroleum Secretary Imtiaz Kazi while talking to The Express Tribune. He said the finance minister has also promised to provide another Rs30 billion in the next quarter (April-June).
The inter-corporate debt has surged to $5 billion (Rs426 billion) due to the government’s indecision on power sector reforms and the arrears of the last government on account of unpaid power subsidies, said an official of the Water and Power Ministry. The government has parked Rs301 billion in a holding company and is paying Rs40 billion interest per annum. On top of that, Rs125 billion is in government books that will soon be transferred to the holding company.
“The PSO management has sought Rs89 billion from the finance ministry, as the situation is very critical,” said a spokesperson for the company. She said the management asked the government to clear at least 50 per cent arrears of the Water and Power Development Authority (Wapda) and power generation companies. “The Rs30 billion promise will avert the crisis-like situation only for two weeks,” she added.
PSO had halted furnace oil supplies to Wapda, Hub Power Company (Hubco) and Kot Addu Power Company. Supply to Wadpa was restored late Friday and supply to Hubco resumed on Monday after the meeting with the finance minister, said the spokesperson. She said oil supply to Kapco, which has power production capacity of 1,345 megawatts, will only be restored after receiving the money. The PSO spokesperson said despite the circular debt, PSO has been avoiding defaults on international payments by taking advantage of the overdraft facility and borrowing from banks. “But we are about to reach the bank borrowing limit,” she added.
The spokesperson said massive borrowing has started hitting PSO’s profit, as by the end of last fiscal year earnings were Rs9 billion and approximately Rs9 billion was the interest paid on loans. During the current financial year, the company has paid Rs6 billion in interest on loans, she added.
Published in The Express Tribune, February 22nd, 2011.
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