Govt to borrow another Rs41b to pay circular debt

Debt in the energy chain has swelled to around Rs402b

ISLAMABAD: After being unable to address structural issues in the power sector, the government on Wednesday decided to acquire yet another loan of Rs41 billion from commercial banks to partially retire the circular debt.

The decision will ease the power sector’s financial woes for the time being, but will not address the challenges that have led to the accumulation of over Rs402 billion in circular debt over four years of the current government.



The debt piled up again after the government cleared Rs480 billion soon after coming to power in June 2013.

Electricity consumers will pay the principal as well as interest on the Rs41-billion borrowing in their monthly bills. The beneficiaries of the loan will be independent power producers (IPPs), Pakistan State Oil (PSO) and Khyber-Pakhtunkhwa government.

The cash injection, which will take one week due to procedural formalities, will allow the IPPs to generate more electricity at a time when the country is facing 8 to 10 hours of load-shedding in a day.

The Economic Coordination Committee (ECC) of the cabinet agreed that the Ministry of Finance would issue sovereign guarantees for arranging a syndicated term finance facility of Rs41 billion for the power sector, according to a statement issued by the finance ministry.

The borrowing will bring the energy sector’s circular debt down to around Rs360 billion. Ironically, the Rs41-billion borrowing will be parked in the government-owned Power Holding Private Limited, where Rs375 billion is already parked.

Although the running power sector circular debt will come down to Rs360 billion, the stock of debt will go up to Rs415 billion.

“The purpose of borrowing is to have enough liquidity to keep the system running,” said Yousaf Naseem Khokhar, Water and Power Secretary.

He explained that delay on the part of finance ministry to clear the subsidy and lack of resolution of structural issues that took a longer time led to the fresh borrowing from commercial banks.

The amount would be utilised for repaying the liabilities of distribution companies through an arrangement between Power Holding Private Limited and the distribution companies, said the finance ministry.

The privatisation of power companies was one of the four pillars of the International Monetary Fund’s programme, which the government could not complete due to opposition by the Ministry of Water and Power and labour unions.

Sources said the Ministry of Finance and the Ministry of Petroleum were also negotiating a Rs29-billion syndicated financing facility in order to retire LNG circular debt of PSO.

Tariff cut

The ECC allowed Rs25 billion interim subsidy payment on account of reduction of Rs3 per unit in prices for industrial electricity consumers.

Earlier, the ECC had directed that the industrial consumers may be given relief by adjusting their tariffs under the fuel price adjustment mechanism.

However, the finance ministry is not in a mood to immediately pay Rs25 billion and may release only Rs6 to Rs8 billion.

Machinery procurement

The ECC approved Rs864 million worth of bridge financing for the Printing Corporation of Pakistan (PCP) to purchase new printing machinery for meeting requirements of the Election Commission of Pakistan including with respect to general elections in 2018.

PCP is required to print 200 million ballot papers for the elections within three weeks of the placement of orders while its existing capacity is only 125 million papers in the given time. It will return the loan over a period of five years.

Sugarcane price

After opposition from the provinces, the ECC had to withdraw its decision to deregulate the sugarcane prices.

In 2015, the ECC had decided to deregulate the prices, but subsequently provinces did not agree, forcing it to withdraw the decision on Wednesday.



The ECC gave an extension in the deadline for sugar export from the end of May to July 31 this year as the millers could export 390,000 tons against the approved quantity of 425,000 tons.

Tax exemption

The ECC approved exemption from general sales tax (GST) for the German Development Agency - GIZ - in respect of goods purchase.

This exemption will also be applicable to the services received by GIZ in the Islamabad Capital Territory. The decision was made to support the development activities of GIZ in Pakistan. The agency will get a benefit of Rs207 million.

Gas quotas

The ECC approved a proposal for allocating up to 10 mmcfd of gas from Tolanj field to Sui Northern Gas Pipelines Limited (SNGPL) and the price of gas would be according to the applicable petroleum policy.

The ECC approved another proposal to allocate 2.9 mmcfd of gas from Khamiso-01 well, located in district Ghotki, to Engro Fertilizers during the extended well testing period and post-approval of commerciality lease of the field.

Published in The Express Tribune, June 8^th, 2017.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.