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Federal Government has decided to issue fresh Sukuk worth Rs 200 billion, in addition to earlier Sukuk of Rs 200 billion through the same consortium of Islamic banks aimed at reducing circular debt prior to signing agreement with International Monetary Fund (IMF), well informed sources told Business Recorder.

The consortium comprising Meezan Bank Limited, Faysal Bank Limited, Bank Islami Pakistan Limited, Dubai Islamic Bank Pakistan, MCD Islamic Bank Limited and Al Baraka Bank Pakistan Limited (mandated lead arrangers) have already submitted their term sheets to Power Division which has forwarded the sheets to the Finance Division.

The country''''s power sector is one the key issues facing the Pakistan economy and a source of concern for the IMF indicated by time bound structural benchmarks in the previous two Fund programmes - Standby Arrangement in 2013 and Extended Fund Facility in 2016 - which were not implemented. During the ongoing negotiations the IMF has suggested a substantial increase in tariffs and reduction in losses which are far higher than international standards.

The sources said the government has to pledge new properties of Distribution Companies (Discos), Generation Companies (Gencos) and Water and Power Development Authority (Wapda) or Discos as collateral as the properties already pledged cannot be re-pledged.

According to sources, the same consortium of banks have approached the federal government and indicated that they have additional liquidity of Rs 200 billion and if the power sector is ready to avail this opportunity they are ready to send term sheets (conditionalities).

The syndicate of Islamic Banks had also forwarded a tentative term sheet for Rs 100-200 billion which specifies that the facility is subject to availability of suitable assets, arrangement of No Objection Certificates (NoCs) from Gencos/ Discos to sell their assets to financiers, federal government guarantee for rental payments and declaring the facility SLR-eligible and all payments to be made at State Bank of Pakistan counter. "Banks have shared the same term sheets against which they extended Rs 200 billion for the power sector," the sources maintained.

The country''''s energy sector''''s circular debt is around Rs 1.5 trillion of which the actual circular debt, as per its definition, stood at around Rs 650 billion and loans parked in the books of Discos are estimated at Rs 850 billion. According to Minister for Power, Omer Ayub, the government would bring down circular debt to Rs 250 billion by December this year. The Power Division has claimed that the power sector revenue has increased by Rs 50 billion due to recent drive against theft and recovery of outstanding arrears.

The sources said pursuant to the approvals of the ECC, syndicated term finance facilities amounting to Rs 806.035 billion have already been executed through Power Holding (Private) Limited for funding repayment liabilities of the Discos.

Of the total Islamic loan being raised, payments will be made to PSO on account of payment for fuel supplies through Hub Power Company (Hubco), Kot Addu Power Company (Kapco) and Generation Companies (Gencos) in addition to payments for RLNG. Further, payment on account of energy to coal-fired power plants will be made. Payment for capacity to nuclear power plants and Wapda to discharge their balance liabilities towards NHP arrears of the province against Wapda''''s invoices to CPPA-G will be made. Balance payments will be made to IPPs against the outstanding capacity payments.

Power Division has suggested following measures to bring down losses to zero: (i) the impact of increase per unit on the consumers would be from Rs 12.98 per unit to Rs 13.85 per unit in March 2019 and then Rs 15.31 per unit in June 2019 to stop flow due to quarterly adjustments; (ii) the flow in 2018-19 will be Rs 223 billion (Rs 2.14 per unit) and flow in 2019-20 will be Rs 97 billion (Rs 0.94 per unit) after initiatives; (iii) to make the flow to zero starting from FY 2019-20 in addition to quarterly adjustment notifications, an additional increase of Rs 0.94 per unit will be required; (iv) total tariff will be Rs 16.24 per unit from Rs 12.98 per unit, indicating a net increase of Rs 3.26 per unit; (v) this tariff adjustment will be in addition to monthly FPA which will result in an increase of Rs 1.9 per unit if gas is supplied @ 850 mmcfd in April, May and June.

Copyright Business Recorder, 2019

the author

I did graduation from the Government Murray College Sialkot and MSc in Psychology from the University of Punjab. I am in journalism since 1990. I worked in Daily Nawa-i-Waqt as sub editor and staff reporter in Daily Pakistan and Daily Din prior to joining Daily Business Recorder. I have been associated with this newspaper since 2000 as staff reporter. Energy Sector, Commerce / Trade and Industries are key areas of my interest. I have also the credit of exposing number of scams like Rental Power Plants (RPPs), LNG, sugar import, etc.