Rs503bn debt to be settled in two months: Plan ready to ease power crisis

Jun 15, 2013

ISLAMABAD, June 14: The government has worked out a three-pronged strategy to clear the entire circular debt of Rs503 billion within two months and to bring into the system before Ramazan 1,500MW to be generated by independent power producers (IPPs).

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Presiding over a meeting on energy on Friday, Prime Minister Nawaz Sharif directed the ministries and agencies concerned to reduce electricity theft, rationalise tariff and minimise line losses.

He will hold meetings every Friday to ensure implementation of the energy revival plan.

Under the strategy, the government will provide Rs326bn to settle circular debt and dues of the Pakistan Electric Power Company (Pepco) before June 30. Of this, Rs200bn would be provided from the federal budget to make cash settlements mostly with the IPPs and the Pakistan State Oil which they had borrowed from banks but were facing difficulty to repay, a senior official told Dawn.

Another Rs126bn will be settled through bonds to be issued on behalf of the Oil and Gas Development Company Limited and Pakistan Petroleum Limited. The two companies with no bank borrowing record at present will get market-based interest on the bonds.

The remaining Rs177bn of the circular debt relates to public sector corporations like Wapda, Government Holdings Private Limited, Mari Gas and Pakistan Atomic Energy Commission having counter liabilities with the government.

It will be settled through a book adjustment mechanism in July.

About Rs100bn will be generated by increasing electricity tariff by 28 per cent or about Rs2.5 per unit from the next fiscal year beginning on July 1.

The government will immediately “embark upon a new plan of cascaded elimination of untargeted subsidies which will significantly reduce the financial burden of the federal government over the medium-term and create fiscal space for affirmative interventions to benefit the deprived segments of society”, the energy revival plan reads.

Meeting with IPPs

Against this background, Finance Minister Ishaq Dar held a meeting with heads – both domestic and foreign – of 28 IPPs on Friday.

The IPPs were assured that they would be paid about Rs230bn within July, with a major chunk of Rs200bn to be cleared before June 30.

According to an official, the IPPs claimed they had outstanding receivables of about Rs250bn. The government wanted them to bring down interest rate on credit to less than Kibor plus two per cent because they had obtained the loans from banks at 2-3pc but were charging the government and power companies at Kibor plus 4pc which was too expensive even though the government provided them sovereign guarantee.

The finance minister also asked the IPPs to increase the credit period from 45 to 60 days to ease cash flows of Pepco in view of the government’s goodwill gesture to clear their Rs230bn upfront.

The IPPs delegation led by former federal secretary Abdullah Yousaf committed to producing additional 1,300 to 1,500MW before Ramazan, which would considerably reduce power shortage.

This capacity is currently lying idle because of circular debt and resultant fuel constraints and minor disputes with gas and power companies.

The finance minister constituted a sub-committee to work on payment of Rs230bn to the IPPs, reduction in interest rate or late payment surcharge, increase in credit period and inclusion of about 1,500MW of additional capacity in the system and submit a report in a week.

An official said tariff rationalisation had become a complicated issue and the government was finding it difficult to pass on the increase to consumers because it wanted to provide direct subsidies only to domestic consumers consuming less than 200 units per month.

A team of the tariff department of National Electric Power Regulatory Authority (Nepra) has been asked to work out different tariff increase proposals keeping in mind the expected fuel price changes over the next 12 months so that power subsidies could be limited within the budgeted amount of Rs150bn for the next fiscal year, down from Rs250bn this year.

The Nepra team was involved in the process on the desire of the prime minister who wanted special care and maximum relief for lowest categories at the time of tariff rationalisation.