Islamabad:
The government has reached an agreement with commercial banks to borrow RS1.25 trillion at less than 11% interest rates as part of its three -shaped strategy to eliminate the threat of circular debt to the viability of the power sector soon.
The fresh agreement is at least 3% to 5% cheaper than the interest on the existing facilities and the sanctions that the government pays not to make timely payments of the energy purchases. RS1.25 trillion debt is taken on the books of the Central Power Calkasing Agency (CPPA) and it would not be part of the total public debt.
The government is currently paying up to 14% costs to the business banks on the loans it had taken in the past to withdraw the circular debt and up to 16% price to the independent power producers (IPPs) so as not to make timely payments to them.
Understanding has reached a day after the plans for the plan were shared with the International Monetary Fund for its endorsement, the government sources told Express Pakinomist.
With the implementation of the plan, the circular debt is removed, but the flow of circular debt continues for at least three to four years, the global lender was informed during the ongoing lectures.
The trade has been considered a great success for the Government of Prime Minister Shehbaz Sharif, who has taken several steps with the help of the military to reduce the cost of electricity and minimize inefficiency.
The trade has been prepared by a combined civilian-military task force for the structural reforms in the electricity sector, and its modalities were completed in the Ministry of Finance on Thursday in the presence of civil-military leadership.
Prime Minister Shehbaz Sharif has already made the chairman of the Task Force, Mohammad Ali, as his advisor for privatization. A formal review is expected soon. Haroon Akhtar Khan has become a special assistant to Prime Minister for Industries and Production, replacing the current industrial minister Rana Tanveer Hussain.
Under the agreement, the commercial banks would cumulatively give RS1.25 trillion to the government at a rate of 1% less than the ruling Karachi Interbank offered rate (kibor). This means approx. 10.8% rate.
The government tried to get the loan at 8% fixed interest, but the banks did not agree.
Out of the total RS2.4 trillion existing circular debt stock, there is a need to resettle the RS1.5 trillion principal to eliminate the debt portfolio, the officials, who negotiated that the agreement told The Express Pakinomist.
As part of the three -formed strategy, the government would retire RS1.5 trillion through fresh borrowing and already available budget support. An amount of RS463 billion would be reduced from circular debt due to the recently revised energy purchase agreements with IPPS and RS225 billion would not require any settlement.
The details showed that the government will borrow RS1.25 trillion from the commercial banks, and RS250 billion space is already available in the budget.
The sources said the government will negotiate with the independent power producers to waive the interest payments corresponding to RS272 billion in return for having incurred prior to full payments.
Out of RS1.25 trillion, RS683 billion will be settled against power that holds limited debt. This debt had been achieved in the past with a rate on the kibor plus up to 2%.
The nuclear plant forces get RS280 billion, the LNG power plants are getting RS220 billion, and the public -owned power plants will receive RS5 billion. Fees with coal -fired power plants will also be settled.
How the debt will be serviced
The government will repay RS1.25 trillion debt over a period of six years and it will be served through RS2.83 per year. Average debt debt development that consumers already pay. Estimated RS350 billion is generated every year.
During the first year of the agreement, the government pays approx. RS135 billion in interest on this debt, and the remaining savings of approx. RS215 billion will be used to pay off the most important loans being taken from these banks.
However, a background of the agreement is that interest rates will increase with the increase in the political rate in the central bank, which would reduce the space to make main directions.
The Ministry of Finance had previously entered into an agreement with the business banks to settle PIA’s RS268 billion worth at 12% fixed rate, or in the event of Kibor falling below it clean, interest rates are automatically reduced. At that time the interest rate was 22%.
The government has already given RS683 billion irrevocable guarantee against Power Holding Limited Loan. This debt of RS683 billion will also be restructured to 1% minus kibor and the guarantees will be used again against the fresh loans.
The RS200 billion effortless land owned by eight power distribution companies will be used as security to support RS200 billion debt.
The government expects another RS463 billion circular debt to be reduced through the ongoing renegotiations of IPPS agreements, excluding Chinese power plants. A sum of RS224 billion that is part of the existing debt related to fuel suppliers or due to government hydel plants does not require any settlement.
Flow is still a problem
During the ongoing negotiations with the IMF, the flow of circular debt remained a problem, although the government had managed to limit power to RS11 billion in the first half of this financial year.
The IMF was told that it will take three to four years to curb the annual increase in circular debt due to inefficiency, theft and loss.
Overall, circular debt had been limited to RS2,384 trillion during the first half of this fiscal year, which in turn jumped close to RS2.48 trillion at the end of last month. The IMF was told there was an increase of RS50 billion in the flow of circular debt in January, and another almost equal amount was added in February.
February’s figures were preliminary and could be a little adjusted.
The IMF asked about the reasons behind the largest expected increase in circular debt in the second half as there was no increase in the first half.
An official from the Ministry of Energy said it will take three to four years to dampen the flow of circular debt. He said it is expected that three power distribution companies – Gujranwala, Islamabad and Faisalabad – will achieve recovery target set by NEPRA in the current financial year.
The official also said that Multan- and Lahore power distribution companies in the next phase would reach Nepra’s recovery target, but it will take three to four years when Hyderabad, Sukkur and Quetta Power Distribution Companies’ recovery of the bills would improve, he added.
The IMF was informed that Disco Support Unit was made functional in Hyderabad, Lahore and Succur Power Distribution Company, which would help reduce the flow of circular debt.
During the first half of the fiscal year, the electricity sector suffered RS158 billion in losses due to inefficiency, theft and underright for bills. A little more than half of RS158 billion
The government of Prime Minister Shehbaz Sharif had not switched the boards of Hesco and Sepco due to a scheme of Pakistan Peoples Party (PPP) allies in the National Assembly that governs Sindh Province.
The sources said the IMF did not accept the government’s proposal to extend the winter aid package to the industrial and agricultural sectors for the full financial year. The IMF asked about the impact of the winter package on power production.
During the month of December, industrial electricity consumption increased by 6.9%, and in January the increase was 2.7%, Sardar Awais Laghari, the federal minister of power told the special cabinet meeting on Tuesday.
The IMF also did not accept the government’s proposal to waive GST on the electricity bills to reduce the cost of end consumers.
