Mutual funds body interested in buying Rs200b Sukuk

Objects to participation of only Islamic banks in the process

ISLAMABAD: The Mutual Funds Association of Pakistan (Mufap) has raised objections over government’s move to raise Rs200 billion from a consortium of Islamic banks only to reduce circular debt in the energy sector, and wants to participate in the process.

An official of the finance ministry told a sub-committee of the Public Accounts Committee (PAC) that the central bank had started the process of borrowing Rs200 billion but Mufap also desired to participate in the bidding. Therefore, the State Bank of Pakistan (SBP) refrained from opening the bids for floating Sukuk at the last minute on Friday.

Mufap had expressed reservations about the participation of only a consortium of Islamic banks and sought to take part in the bidding for Rs200 billion worth of Sukuk to slash circular debt in the energy sector.

Pakistan State Oil (PSO) Deputy Managing Director Jehangir Ali Shah told the parliamentary body that state-run oil marketing company had to make payment of Rs103 billion in March against letters of credit (LCs) for oil import whereas in April it would have to pay Rs105 billion but the company had no cash.

Similarly, PSO was also facing difficulty in managing the flow of liquefied natural gas (LNG) as Sui Northern Gas Pipelines (SNGPL) had to pay Rs97 billion for LNG supplies whereas the national flag carrier, Pakistan International Airlines (PIA), owed Rs14 billion, Shah added.

The committee was informed that PSO was also finding it tough to manage the repayment cost of loans worth Rs100 billion acquired for commodity operations as interest rates were hovering around 14%.

Overall receivables of PSO stood at Rs360 billion. The deputy managing director said earlier the company was securing loans at 6% mark-up from banks but the interest rate had now jumped to 14%, making additional borrowing difficult. He said the Petroleum Division had written a letter to the Finance Division, seeking release of Rs20 billion so that the company could continue operations but the money had not been released so far.

The PSO official warned that the company may face a worse situation if the federal government did not make payments to the OMC as it would collapse and there would be “aviation blackout” in the country.

Petroleum secretary acknowledged that the situation was poor for PSO but assured the committee that the ministry would manage to get a package approved from the Economic Coordination Committee and federal cabinet for the company.

The parliamentary panel directed the Auditor General of Pakistan to conduct a performance audit of Inter State Gas Systems (ISGS), an attached department of the Petroleum Division, within a month and submit a report to PAC.