(By Zafar Bhutta) Govt to borrow Rs55b to retire circular debt
As the circular debt piles up to Rs400 billion, the government plans to borrow another Rs55 billion from commercial banks to retire dues of the Pakistan State Oil (PSO) and independent power producers (IPPs).
Sources told The Express Tribune that during a meeting on Wednesday, Prime Minister Shahid Khaqan Abbasi was informed that circular debt now stood at Rs400 billion and different energy companies were facing problems to continue their operations.
The IPPs had launched a media campaign to present their issues when Nawaz Sharif was the prime minister. However, the government had asked these power producers to stop the campaign and told them that a summary was prepared to be tabled before the Economic Coordination Committee (ECC) to approve guarantees to borrow Rs55 billion from commercial banks to retire the circular debt.
“However, the decision could not be implemented as Nawaz Sharif was disqualified by the Supreme Court and the cabinet was dissolved,” an official said. “Now the new cabinet has again taken up the case, and the summary to borrow Rs55 billion will now be tabled before the ECC.”
He said the PSO was likely to get Rs10 to Rs15 billion out of the total amount while and the remaining amount would go to the IPPs. At present, different entities owe the PSO around Rs285 billion, and Rs256 billion of this amount is outstanding against power generation companies.
Genco is to pay the PSO Rs147 billion while Rs68 billion, Rs34.4 billion and Rs5.9 billion are outstanding respectively against the Hub Power Company (Hubco), the Kot Addu Power Company (Kapco) and the Wapda Power Privatisation Organisation (WPPO).
The PSO is also to receive Rs15.6 billion from the Pakistan International Airlines (PIA) and Rs4.2 billion from the Sui Northern Gas Pipelines Limited (SNGPL). The state-run oil marketing company is to pay Rs12.7 billion to local refineries and Rs65.6 billion to Kuwait and Qatar on account of oil and LNG imports.
During the Wednesday’s meeting, the prime minister was also informed that the power sector had shown remarkable performance during the present government’s tenure as losses had come down and recovery of power bills had increased.
Overall recoveries crossed 93% consecutively in fiscal years 2015 and 2016 as compared to 88-89% in 2014. Transmission and distribution losses declined to 17.8% by end Dec 2016 against 19% in 2014. This resulted in a positive cash flow to the power sector, totaling to Rs116 billion in these two years.
Generation companies were making a cumulative loss of Rs7.78 billion in 2013-14. They not only overcame their losses but also reported a profit of Rs5.77 billion in 2015-16.
All these achievements as well as a historic drop in oil prices helped keep the power sector’s circular debt within the range of Rs320-330bn from December 2014 to June 2016.
These two fiscal years are the only period in over a decade when no losses were paid out of the federal budget. The payment will be around Rs200 billion annually. This has reduced the budgetary burden from 2.4% of GDP to 0.7%.