Government to borrow another Rs41b to pay circular debt

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ISLAMABAD: 

After being unable to address structural issues in the power sector, the government on Wednesday decided to take yet another loan of Rs41 billion from commercial banks to partially retire the circular debt.

The decision will ease the power sector’s financial woes for the time being, but will not address the challenges that have led to the accumulation of over Rs402 billion in circular debt over four years of the current government.

The debt accumulated  again after the government cleared Rs480 billion soon after coming to power in June 2013.

Electricity consumers will pay the principal as well as interest on the Rs41-billion borrowing in their monthly bills. The beneficiaries of the loan will be independent power producers (IPPs), Pakistan State Oil (PSO) and Khyber-Pakhtunkhwa government.

The cash injection, which will take one week due to procedural formalities, will allow the IPPs to generate more electricity at a time when the country is facing 8 to 10 hours of load-shedding in a day.

The Economic Coordination Committee (ECC) of the cabinet agreed that the Ministry of Finance would issue sovereign guarantees for arranging a syndicated term finance facility of Rs41 billion for the power sector, according to a statement issued by the finance ministry.

The borrowing will bring the energy sector’s circular debt down to around Rs360 billion. Ironically, the Rs41-billion borrowing will be parked in the government-owned Power Holding Private Limited, where Rs375 billion is already parked.

Although the running power sector circular debt will come down to Rs360 billion, the stock of debt will go up to Rs 415 billion.

“The purpose of borrowing is to have enough liquidity to keep the system running,” said Yousaf Naseem Khokhar, Water and Power Secretary.

He explained that delay on the part of finance ministry to clear the subsidy and lack of resolution of structural issues that took a longer time led to the fresh borrowing from commercial banks.

The amount would be utilized for repaying the liabilities of distribution companies through an arrangement between Power Holding Private Limited and the distribution companies, said the finance ministry.

The privatization of power companies was one of the four pillars of the International Monetary Fund’s programme, which the government could not complete due to opposition by the Ministry of Water and Power and labour unions.

Sources said the Ministry of Finance and the Ministry of Petroleum were also negotiating a Rs29-billion syndicated financing facility in order to retire LNG circular debt of PSO.

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