Debt plan may be sent to IMF

SIFC arm gives directive to seek lender’s approval for Rs1.27tr debt settlement plan

Shahbaz Rana January 26, 2024


An arm of the Special Investment Facilitation Council (SIFC) has given directive to seek approval of the International Monetary Fund (IMF) for the settlement of energy sector circular debt of Rs1.27 trillion amid the Ministry of Finance’s refusal to provide Rs745 billion for cash injection in the short term.

The net impact on budget of the Rs1.27 trillion circular debt plan will come to Rs902 billion. Out of the Rs902 billion, the lion’s share of Rs556 billion, or 62%, will go to one firm – Oil and Gas Development Company Limited (OGDCL). The company’s share price dropped Rs10.6, or 7.24%, and closed at Rs135.31 on Thursday.

Of the debt settlement plan of Rs1.27 trillion, it is proposed to retire a little over Rs1 trillion of the gas sector circular debt, involving companies listed at the stock market and leaving a major impact on their share prices. The remaining over Rs250 billion will be spent on curtailing the power sector circular debt of Rs2.7 trillion.

The impact of the settlement plan on the budget is estimated at Rs902 billion, including the additional grant of Rs745 billion being sought by the energy ministry for a day to start the process in order to seek approval of the boards of power and gas sector companies, a senior ministry official told The Express Tribune.

The SIFC executive committee has this week instructed the Ministry of Energy and the Ministry of Finance to send the Rs1.27 trillion circular debt reduction proposal to the IMF for endorsement, an SIFC member told The Express Tribune.

It is expected that the Ministry of Energy will send a final version of the plan to the Ministry of Finance by Friday, which will then be shared with the IMF.

The IMF’s endorsement and implementation of the plan is very critical before the caretaker government hands over control to the next elected government, a cabinet minister said on condition of anonymity.

The Ministry of Finance did not respond to a request for comments on whether it was in favour of tossing the plan to the IMF. The ministry has so far refused to provide Rs745 billion in additional supplementary grants and without that the plan could not be implemented.

The finance ministry also told Prime Minister Anwaarul Haq Kakar that the circular debt settlement was not the responsibility of the Finance Division and the energy ministry should not shift its burden on to the exchequer. Energy ministry officials said that the grant of Rs745 billion was needed for only one day to trigger the entire process. The actual funds that would go back to the kitty in the shape of dividends and taxes would be Rs748 billion, they claimed in the plan submitted to the SIFC.

Once implemented, the gas sector debt will come down from over Rs3 trillion to Rs2 trillion. The power sector circular debt will drop to Rs2.5 trillion.

Read IMF warns of risks to economy despite stabilisation

The Ministry of Energy has proposed a seven-tier plan to settle the circular debt in a manner that greases the system but has no impact on the budget.

Out of the Rs902 billion grant, an amount of Rs556 billion will go to OGDCL. The second highest amount will be given to Government Holdings Private Limited (GHPL), which will receive Rs168 billion, followed by Rs100 billion for National Power Parks Management Company (NPPMC) and Rs29 billion for Pakistan State Oil (PSO). Pakistan Development Fund Limited (PDFL) will get Rs82.7 billion.

Pakistan Petroleum Limited’s (PPL) share price dropped Rs9.42, or 7.38%, and closed at Rs118.28 on Thursday. PSO’s share price decreased Rs4.23, or 2.4%, to Rs176.84.

As per the plan, Sui Northern Gas Pipelines Limited (SNGPL) will disburse Rs386 billion to exploration and production (E&P) companies. An amount of Rs126 billion will go to PPL, Rs10 billion to GHPL and Rs250 billion to OGDCL on account of SNGPL’s payables.

Sui Southern Gas Company (SSGC) will disburse Rs259 billion to E&P companies and out of which Rs112 billion will go to GHPL and Rs147 billion to OGDCL.

Officials of the Ministry of Energy said that the money received through supplementary grants from the Ministry of Finance would be returned in the form of dividends announced by the boards of these companies.

However, there is a catch in the settlement plan. The Ministry of Energy hopes that the board of directors will announce dividends on their date and time along with the amounts, said the Ministry of Finance officials. They called it a risk, therefore, the Ministry of Finance was reluctant to support the plan. The government fully owns NPPMC and GHPL. But its shareholding in PPL was 75%, in OGDCL 85% and in PSO 25%.

OGDCL is expected to announce Rs467 billion in dividends, of which Rs397 billion will be the government’s share. PPL is projected to give Rs126 billion in dividends and Rs98 billion is expected to land in the government’s coffers.

GHPL will give Rs168 billion in dividends, NPPMC Rs40 billion and PDFL Rs28.7 billion. PSO has been kept out of the dividend cycle.

FBR will get Rs24.2 billion in the shape of income tax on dividend payments.

Published in The Express Tribune, January 26th, 2024.

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