ECC meeting: Power consumers to pay for petrol crisis-inspired follies

Decision to impact bills by less than Rs0.12 per unit; another PSM bailout under consideration

ISLAMABAD:

Bill paying consumers of electricity will be made to pay for the government’s inability to anticipate and manage the petrol crisis, as a cabinet committee agreed to charge consumers for the decision to borrow Rs40 billion to retire a portion of the energy sector’s debt.

At the height of the petrol crisis in Punjab in January, the finance ministry arranged for a Rs40 billion loan from commercial banks to help the water and power ministry pay independent power producers (IPPs), which in turn were then able to pay Pakistan State Oil, which was then able to pay its international suppliers for the additional oil shipments needed to alleviate the petrol crisis.

The borrowing entity was Power Holding (Pvt) Ltd, the state-owned company that acts as the holding vehicle for all state-owned power distribution companies. The interest rate on the five-year loan was the Karachi Interbank Offered Rate (Kibor) plus one per cent, said Water and Power Secretary Younus Dhaga.



At its meeting on Saturday, the Economic Coordination Committee of the Cabinet gave retroactive approval for the sovereign guarantees for the loan, according to an official handout.

The loan will be paid back by adding it to the electricity bills of consumers, and the ECC has already ordered the National Electric Power Regulatory Authority (Nepra) to add the cost of the loan to consumer electricity bills.

Nepra, however, has been resisting the move out of fear that it is illegal. Finance ministry officials say that Nepra has withdrawn its objections and will make the necessary changes to electricity tariffs, a move that is likely to be unpopular.

“This is the price that all the honest consumers have to pay for not introducing reforms,” said Nadeemul Haque, a former deputy chairman of the Planning Commission.

The actual impact of the loan on electricity bills is likely to be relatively miniscule, given that it is spread over five years. In the first year, the impact for each individual consumer is likely to be less than Rs0.12 per kilowatt-hour.

When it came into office in May 2013, the Nawaz administration borrowed Rs480 billion to retire the entire circular debt of the energy sector. However, a failure to curb electricity theft and making delinquent consumers pay has resulted in that debt just piling back up again. Even after this Rs40 billion in paid off, another Rs260 billion in circular debt will remain, say finance ministry officials.



Steel Mills bailout

The ECC also agreed to inject another Rs960 million help the ailing state-owned Pakistan Steel Mills pay two months’ salaries to its employees. PSM management had sought Rs8.2 billion for salary payments and repair work. This is the second bailout to PSM in the last one year. Last year, the ECC had approved a Rs18.5 billion bailout for PSM.

The government’s attempts to privatise the country’s largest industrial unit have not yet succeeded. In the first step it wanted to hire a financial advisor.

The only consortium that came forward to take the job was disqualified on technical grounds by the Privatisation Commission.

The PSM chairman informed the ECC that despite difficulties in obtaining an adequate supply of electricity and natural gas, PSM had achieved 50% production capacity and management was eying reaching 70% of capacity by March.

The ECC constituted a committee to look into the affairs of PSM and recommend whether the entity needs Rs7 billion more on immediate basis. The ECC also asked the Privatisation Commission to table its proposal for the restructuring of PSM at the next meeting. The ECC has already approved a restructuring plan for the PSM last year.

Sugar

The ECC also approved disposal of 28,999 metric tons of unsold sugar stock available with the Trading Corporation of Pakistan (TCP). The Utility Stores Corporation would procure sugar from TCP.

Gas supply

The ECC approved to allocate 12 million cubic feet per day (mmcfd) of gas from Miano tight gas field to Sui Northern Gas Pipelines through swapping arrangements. It also approved to allocate 3 mmcfd gas from Maru-East-1 gas field to Engro Fertiliser which would produce 14,000 tons more urea as a result.

Published in The Express Tribune, March 1^st, 2015.