Islamabad:
The Government has concluded an agreement with commercial banks to borrow 1.25 Billion of rupees less than 11% of the interest rate within the framework of its three -component strategy aimed at soon to eliminate the threat of circular debt to the viability of the energy sector.
The new contract is at least 3% to 5% cheaper than interest on existing installations and penalties that the government pays not to make payments in a timely energy purchases. The debt of RS1,25 Billions is taken in the books of the Central Power Purchase Agency (CPPA) and would not be part of the global public debt.
The government is currently paying up to 14% of the costs of commercial banks on the loans it had taken in the past to withdraw the circular debt and up to 16% price for independent electricity producers (PPI) for not having made payments in time.
Understanding was reached one day after the contours of the Planning were shared with the International Monetary Fund for its approval, government sources told The Express PK Press Club.
With the implementation of the plan, the stock of the circular debt will be eliminated, but the flow of circular debts will continue for at least three to four years, the world lender was informed during the current talks.
The agreement was considered a major success of the government of Prime Minister Shehbaz Sharif, who, with the help of the army, has undertaken many stages to reduce the cost of electricity and minimize ineffectures.
The agreement was concluded by a combined civil-military working group for structural reforms in the power sector and its methods were finalized on Thursday at the Ministry of Finance in the presence of civil-military management.
Prime Minister Shehbaz Sharif has already made the president of the working group, Mohammad Ali, as his advisor on privatization. An official notification is expected soon. Haroon Akhtar Khan was appointed special assistant to the Prime Minister of Industries and Production, replacing the outgoing minister of the Rana Tanveer Hussain industry.
According to the agreement, commercial banks would cumulatively lend 1.25 billion of rupees to the government at a rate of 1% lower than that of the rate offered by Karachi Interbank (Kibor). This results in a rate of approximately 10.8%.
The government has attempted to obtain the loan at 8% fixed interest rate, but the banks did not accept it.
Of the total of RS 2.4 billions of existing circular debt stocks, it is necessary to reinstall the main amounts of 1.5 billion of rupees to eliminate the stock of debt, the officials who negotiated the Express PK Press Club agreement.
As part of the three -steal strategy, the government would retire from 1.5 billion of rupees thanks to new loans and a budgetary support already available. An amount of 463 billion rupees would be reduced by the circular debt due to the recent energy purchase agreements revised with PPIs and 225 billion rupees would not require any regulations.
Details have shown that the government will borrow 1.25 billion from rupees from commercial banks and that 250 billion rupees are already available in the budget.
The sources have said that the government would negotiate with independent power producers to renounce payments of interests amounting to 272 billion rupees in exchange for the management of payments in advance.
On the RS1.25 Billions, the RS683 billion will be settled against power with limited debt. This debt had been obtained in the past at a rate of Kibor plus up to 2%.
The powers of nuclear power plants will receive 280 billion rupees, LNG power plants will receive 220 billion rupees and public power plants belonging to the government will receive 5 billion rupees. The contributions of coal -fired power plants will also be paid.
How the debt will be served
The government will reimburse the debt of 1.5 billion of rupees over a period of six years and it will be maintained through Rs 2.83 per unit of medium debt that consumers are already paying. It is estimated that 350 billion rupees are generated each year.
During the first year of the agreement, the government will pay around 135 billion rupees in terms of interest on this debt and the remaining savings of approximately 25 billion rupees will be used to reimburse the main loans from these banks.
However, a backdrop of the agreement is that the interest rate will increase with the increase in the policy rate by the central bank, which would reduce the space to make main reimbursements.
The Ministry of Finance had previously concluded an agreement with commercial banks to settle the value of 268 billion rupees from RS 268 to 12%, or in case the Kibor drops below this rate, the interest rate will automatically reduce. At that time, interest rates were 22%.
The Government has already granted 683 billion rupees of irrevocable warranty against the loan limited to power outfit. This debt of 683 billion rupees would also be restructured at 1% less Kibor and the guarantees will be used again against new loans.
Lands of 200 billion uncommoned rupees held by eight electricity distribution companies will be used as a guarantee to support the debt of 200 billion rupees.
The government expects a circular debt of 463 billion rupees to be reduced by the current renegotiations of IPPS transactions, excluding Chinese power plants. A sum of 224 billion rupees which is part of the existing debt stock linked to fuel suppliers or due to the Hydel factories of the government will not require any regulations.
Flow is still a problem
During the current talks with the IMF, the flow of the circular debt remained a concern, although the government has managed to restrict the flow to Rs11 billion in the first half of this exercise.
The IMF has been informed that it will take three to four years to stem the annual increase in circular debt due to ineffectiveness, theft and losses.
Overall, the circular debt had been limited to Rs 2,384 Billions during the first half of this exercise, which again jumped near RS2.48 Billions by the end of last month. The IMF was informed that there was an increase of 50 billion rupees in the flow of the circular debt in January and another almost equal amount was added in February.
The February figures were temporary and could be slightly adjusted.
The IMF has inquired about the reasons for the major increased increase in the circular debt in the second period when during the first half, there was no increase.
An official of the Ministry of Energy said that it would take three to four years to completely stem the flow of the circular debt. He said it is planned that three electricity distribution companies – Gujranwala, Islamabad and Faisalabad will achieve recovery objectives set by NEPRA during the current financial year.
The official also said that in the next phase, Multan and Lahore electricity distribution companies would reach the recovery objectives of NEPRA, but it will take three to four years when invoices by Hyderabad, Sukkur and Quetta for the distribution of electricity would improve, he added.
The IMF has been informed that the disco support unit was made functional in electricity distribution companies of Hyderabad, Lahore and Sukkur, which would help reduce the flow of the circular debt.
During the first half of the financial year, the electricity sector underwent 15 billion rupees of losses due to ineffectiveness, theft and the sub-elections of invoices. Just over half of the losses of 15 billion rupees were caused by only two electricity distribution companies Hyderabad Electricity Supply Company (Hesco) and Sukkur Electric Power Company (Sepco).
The government of Prime Minister Shehbaz Sharif did not revise the boards of directors of Hesco and Sepco due to an arrangement with the Pakistani peoples (PPP) Party – the Ally of the Government in the National Assembly which governs the province of Sindh.
The sources said that the IMF did not accept the government’s proposal to extend the winter rescue package for the industrial and agricultural sectors for the full financial year. The IMF has inquired about the impact of the winter package on electricity production.
During the month of December, industrial electricity consumption increased by 6.9% and in January, the increase was 2.7%, Sardar Awais Laghari, Federal Electricity Minister said on Tuesday.
The IMF has also not accepted the government’s proposal to give up TPS on electricity bills to reduce the cost of end consumers.
