ECC approves circular debt settlement plan

Govt will borrow and immediately pay Rs80b to power producers, fuel suppliers

ISLAMABAD: The government on Wednesday approved a circular debt settlement plan and decided to immediately pay Rs80 billion to power producers and fuel suppliers out of Rs526 billion worth of dues aimed at easing their financial constraints.

Unlike June 2013 when the government cleared Rs480 billion in power sector debt in one go, this time around the Economic Coordination Committee (ECC) is more cautious and it will clear only the invoice-based energy cost.



Headed by Prime Minister Shahid Khaqan Abbasi, the ECC endorsed the Framework of Circular Debt Resettlement Plan.

The Rs80-billion debt will be cleared after obtaining loans from commercial banks and the cost of debt servicing will be recovered from electricity consumers through their monthly bills. The consumers will pay 43 paisa per unit to service the debt.

The circular debt totalled Rs526 billion as of December 2017 which included Rs312 billion in energy cost and the remaining Rs214 billion was on account of capacity charges, liquidity damages and loan mark-up.

The Rs480-billion circular debt payment of 2013 is currently under investigation at the National Accountability Bureau. A probe by the Senate Standing Committee on Finance has already established over Rs62 billion worth of undue payments to the independent power producers (IPPs).

“The ECC approved a plan to settle power-sector payables which will ensure that government-owned companies including PSO, SSGC, SNGPL, Gencos, DISCOs and nuclear power plants continue to operate normally,” said an announcement of the Prime Minister’s Office.

The government would also settle outstanding bills of the IPPs after reconciliation and pre-audit in a prescribed manner to ensure transparency, it added.

Adviser to the Prime Minister on Finance Dr Miftah Ismail will decide about the distribution of Rs80 billion among these companies.

The payment will be parked in Power Holding Private Limited (PHPL) - a subsidiary of the Power Division. The government has already booked Rs400 billion borrowed from banks to retire the debt in PHPL.

With fresh borrowing from banks, the accumulated borrowing related to PHPL will rise past Rs480 billion.

By including the debt parked in PHPL, the total circular debt amounts to a whopping Rs926 billion.

According to the ECC-approved framework, in order to clear Rs326-billion debt, the government will ask power distribution companies to take loans of Rs50 billion to Rs60 billion.

In addition to that, the government will also divert some of the savings from this year’s budget to clearing the circular debt in order to avoid adverse impact on the budget.

It has currently Rs14 billion in savings on account of negative fuel cost adjustment in Balochistan electricity bills. According to an earlier ECC decision, the adjustment will not be passed on to certain categories of consumers that benefit from subsidies. The ECC also approved the issuance of sovereign guarantees for a financing facility of Rs13.13 billion from banks for power transmission from a 1,320-megawatt imported coal power plant in Hub. The project is part of the China-Pakistan Economic Corridor.

The ECC reviewed progress on its earlier directive to the Trading Corporation of Pakistan to procure 300,000 tons of sugar from the mills. The directive was aimed at facilitating the sugar mills in timely procurement of sugarcane and ensuring payments to the farmers at prescribed rates, according to the PM Office.

Interestingly, the government has doled out billions of rupees to the sugar barons in the name of facilitating the farmers. Yet the farmers are not receiving the official price of sugarcane.

The meeting was informed that no bid was received against the TCP’s earlier tender for sugar procurement at Rs48 per kg.

The ECC also approved the wheat procurement target at 6.1 million tons for the 2017-18 season.



It allowed the signing of an agreement between Pakistan and the Saarc Arbitration Council (Sarco) for exempting the latter and its officials from duties and taxes.

It accorded approval to a proposal of linking the price of JP-8 petroleum product with the ex-refinery price of JP-1. The ECC gave the go-ahead to the payment of three-month salary (October to December 2017) to the employees of Pakistan Steel Mills. The mill has been closed for the past around three years after its gas supply was cut off due to accumulation of dues.

Published in The Express Tribune, March 8^th, 2018.

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