ECC approves move to seek Rs31b from commercial banks to pay off circular debt

ECC approves Ramazan Relief Package 2014 worth of Rs2 billion, effective from June 23, 2014.

ISLAMABAD: The federal government decided on Friday to retire circular debt of Rs31 billion by borrowing from commercial banks to keep the power plants running during the summer season, as circular debt has been piling up due to less recoveries and persistently higher line losses.

The Economic Coordination Committee of the Cabinet took the decision to partly retire the debt by borrowing from commercial banks at an interest rate of around 11%.

The decision was taken at ECC meeting held at PM House, under the chairmanship of the Federal Minister Ishaq Dar.

The move would help the government avoiding adverse impact of payments on the budget, as the economic team tries to keep the fiscal deficit at 5.8% of total national output, as agreed with the International Monetary Fund (IMF).

The move is likely to adversely impact electricity prices as the government would seek to recover the principal amount and the interest rate from the electricity consumers due to the heavy borrowing.

According to IMF documents, the government has given assurance to the body that the amount would be recovered from consumers.

“The ECC also approved the summary of Ministry of Water and Power for issuance of sovereign guarantee by Ministry of Finance in respect of indicative terms and conditions for syndicated term finance facility up to Rs31 billion for the power sector,” the official handout stated.

The Pakistan Power Holding Company–the subsidiary of the Ministry of Water and Power will raise the money from a consortium of commercial banks, led by National Bank of Pakistan, said an official of finance ministry.
The money will be paid to Pakistan State Oil (PSO) for restoring fuel supplies to the power plant.

Despite paying the Rs31 billion, the circular debt will hover around the Rs250 billion mark, the official said.

The finance ministry has so far paid Rs232 billion in power subsidies on account of difference of price of generation and end-consumer electricity prices. Dar has already refused to pay bills on account of less recoveries and lines losses, caused by electricity theft and obsolete transmission system.

Ramazan package approved

ECC also approved Ramazan Relief Package 2014 worth of Rs2 billion, effective from June 23, 2014.

The relief package is aimed at providing on the essential commodities being sold at Utility Stores.

The subsidy to be provided on Flour is Rs6 per kg of ghee and cooking oil; Rs10 per kg on lentils (channa, moong mash, masoor) gram, gram-flour, dates, rice basmati, broken rice. While the subsidy to be provided on squashes and syrups Rs10 per kg, tea Rs50 per kg, milk (Tetra Pack) Rs10 per litre and spices 10%.

Gas exploration

The ECC was informed by Secretary Petroleum and Natural Resources that recently the Mari Petroleum Company Ltd. has discovered additional gas reserves in Pirkoh formation of Marri D&P Lease area.

Based on the initial test results and broad assessment of reservoirs size and potential, approximately six MMCFD would be reserved for supply at its natural specs (raw gas) and pressure for an estimated initial period of 18 months.

ECC gave approval to the proposal that gas discovered at Pirkoh formation to be allocated to Thermal Power Station Guddu (TPSG) of WAPDA being in the vicinity of MPCL’s field and capable to off-take the gas readily.

Policy Framework for private sector transmission lines projects

The ECC also considered the summary of the Ministry of Water and Power regarding approval of Policy Framework for private sector transmission lines projects.

The policy offers transmission system projects to the private sector on BOOT model. The policy covers transmission lines and grid stations of 220 KV voltage and above. The time of the project will be five years and PPIB will be providing one window facility.

Dar said that instead of giving upfront tariff for transmission lines project, international competitive bidding model should be considered in order to take the country on to the right path. The finance minister said that before finalising policy framework for transmission lines project by the private sector, all stakeholders including Law Division should be consulted and the policy framework should be resubmitted to the ECC.

Urea stock for Kharif crop

The ECC was also informed that sufficient stocks of imported urea are available with the National Fertilizer Marketing Limited (NFML) to meet the requirements of the Kharif Crop.

The Finance Minister directed to Ministry of Industry and Production and the officials of NFML to dispose of the available stocks of urea at the earliest for the benefit of the farmers.

The meeting was also attended by Minster for Water and Power Khawaja Mohammad Asif, Minister for Industries and Production Ghulam Murtaza Khan Jatoi, Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi, Minister for Science and Technology Zahid Hamid, Minister for National Food Security Sikandar Hayat Khan Bosan, Minister for Railways Khawaja Saad Rafiq, Minister of State for IT and Telecom Anusha Rehman Khan, Federal Secretaries and senior officials of the government.