ECC defers decision on circular debt

Finds fault with disbursement mechanism which PM aide says lacks transparency


Shahbaz Rana May 30, 2020

ISLAMABAD: The government on Friday put off decision on retiring Rs200 billion worth of circular debt after it found some fault in the disbursement mechanism that, according to Finance Adviser Dr Abdul Hafeez Shaikh, lacked transparency.

Headed by the finance adviser, the Economic Coordination Committee (ECC) of the cabinet met to discuss criteria for the disbursement of Rs200 billion - the only agenda for the meeting.

The summary had been moved by the Power Division. The government raised Rs200 billion from the capital market in a bid to reduce the circular debt that had crossed Rs2 trillion.

The Power Division also proposed to clear the debt of those independent power producers (IPPs) that were accused of receiving excess payments by the IPPs’ inquiry committee constituted by the prime minister.

Owing to reservations expressed by the finance adviser and some other committee members, the ECC deferred its decision till Saturday evening.

Early this month, the ECC had directed the Power Division to evolve a viable mechanism for transparent disbursement of Rs200 billion among the power generation companies. The financing has been raised by floating Islamic bonds in the domestic stock market.

Out of the Rs200 billion, Rs130 billion had been proposed to be given on account of power purchase and the remaining Rs70 billion in idle capacity payments.

Shaikh inquired about the existing practice and criteria for payments to the power producers but he could not get a satisfactory answer, a meeting participant said.

The ECC was informed that the chief executive officer and the chief financial officer of the Central Power Purchasing Agency-Guarantee (CPPA-G) would take decision on making these payments.

ECC members were of the opinion that the current procedure lacked transparency and could be prone to misuse, said the officials.

The ECC chairman observed that public money should not be distributed according to the will of some people and there should be transparent criteria for its disbursement.

Some members expressed concern that a non-transparent mechanism could lead to a probe by the National Accountability Bureau (NAB), said the officials.

The Pakistan Muslim League-Nawaz (PML-N) government had also cleared Rs480 billion worth of circular debt in June 2013, which eventually turned into a scam for the then government and triggered probes by various bodies, including parliamentary investigations.

The Power Division on Friday recommended the ECC that all the IPPs, which were alleged in the IPPs inquiry report, would be paid in the manner that after disbursement of funds total payables to these IPPs would remain equal or higher than the alleged excess profit reported or systemic problems mentioned in the report.

The general recommended criterion was that the energy purchase price, including the GST, would be given preference so that fuel stocks remained at highest levels. Re-gasified liquefied natural gas (RLNG)-fired power plants and coal-fired power plants were also given preference.

Capacity payments should be disbursed to meet debt servicing and tax requirements for the quarter ending June 2020, according to the Power Division’s proposal.

Payments to Wapda, Chashma nuclear power plants, partial settlement of power import from Iran and National Transmission and Despatch Company (NTDC)’s transmission charges were to be disbursed against capacity payments, according to the Power Division.

The Power Division proposed that Rs43.6 billion should be paid to three RLNG-fired power plants, IPPs, Kot Addu Power Company (Kapco) and Generation-III companies. Apart from that, Rs39.5 billion was proposed to be paid on account of energy charges and Rs4.1 billion in idle capacity payments.

It proposed to give Rs9 billion to Pakistan State Oil through Hubco and Kapco. An amount of Rs16 billion was proposed to be given to residual furnace oil (RFO)-based IPPs, including Rs3.1 billion in idle capacity payments.

The Power Division proposed that Rs22.5 billion should be given to gas-fired IPPs, including Rs3 billion in idle capacity payments. An amount of Rs11 billion was proposed for coal-fired power plants and Rs25 billion for nuclear power plants.

The Power Division proposed Rs2.5 billion for Wapda, hydel and Neelum-Jhelum projects including Rs903 million on account of idle capacity payments.

Roughly Rs6 billion was proposed for small hydel power plants and Rs15.5 billion for small wind, solar and bagasse-based power plants.

For four gas distribution and exploration companies, Rs2 billion was proposed and Rs1 billion for Tavanir - the Iranian company providing electricity to Gwadar. NTDC was also proposed to get Rs2 billion.

The ECC was told that the existing disbursement methodology was that the CPPA-G was maintaining the overall percentage-based billing and payment since July 2017 and the same would continue to be followed for other disbursements.

However, the ECC chairman said there should be proper laid-down procedure to avoid any controversy.

Published in The Express Tribune, May 30th, 2020.

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