Reducing circular debt: TFC issue delayed as law ministry yet to vet guarantees

Finance ministry presses for immediate examination of bank guarantees.

Zafar Bhutta July 27, 2012
Reducing circular debt: TFC issue delayed as law ministry yet to vet guarantees


In an attempt to control the swelling inter-corporate debt, the Ministry of Finance has asked the Ministry of Law to immediately vet bank guarantees to pave the way for issuing term finance certificates (TFCs) worth Rs82 billion, which is aimed at clearing debt of companies in the energy chain.

“The finance ministry has sent a summary to the law ministry, asking it to vet the guarantees to be provided to banks on purchase of TFCs worth Rs82 billion, which will be issued against reserves of the Oil and Gas Development Company (OGDC). However, the law ministry has not examined these so far,” an official of the water and power ministry told The Express Tribune.

The official pointed out that the water and power ministry wants the finance ministry to pursue the guarantee issue with the law ministry while the finance ministry asks the power ministry to perform the task.

In May, President Asif Ali Zardari had given the go-ahead to issue the TFCs in order to reduce the circular debt and improve energy supply. The plan was prepared by the petroleum ministry, which claimed that it could settle the circular debt amounting to Rs450 billion.

Owing to delay on the part of the law ministry, the government has not been able to float TFCs to clear dues of billions of rupees of the independent power producers (IPPs), which have entered into litigation.

Four independent power plants including Sapphire, Hamlore and Orient have filed cases against the government for blocking their dues of Rs40 billion. In a recent meeting held at the water and power ministry, the differences deepened after the IPPs refused to receive payments in installments. They had also threatened to shut down the plants if the dues were not cleared.

“Had TFCs been floated, the situation would not have worsened,” the official said, adding the government had no money to pay to the power plants and was waiting for the issuance of TFCs to generate funds.

Officials of the water and power ministry blame the power distribution companies for being mainly responsible for the unending circular debt. The recovery rate of power bills of these companies was very poor with persistent bad governance, leading to liquidity crunch and making it difficult to even ensure fuel supplies.

For the last few years, the government has also been delaying payment of tariff differential subsidy to the power companies, which has compounded the problem.

“Transmission and distribution losses beyond Nepra determinations are also the major reason behind the build-up of the circular debt,” the ministry official said.

Published in The Express Tribune, July 28th, 2012.


sana abdullah | 11 years ago | Reply

That PKR82bn TFC had nothing to do with Saphire, Halmore and the other smaller IPPs

That was only for HUBC, KAPCO and PSO and the refineries that are supplying fuel to PSO.

Because this was only being done to bail out PSO.

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