These comments came from the Finance Division on a proposed summary of Power Division titled 'issuance of new sovereign guarantee by Ministry of Finance in respect of fresh Syndicated Term Finance Facilities (STFF) for (i) Rs 136.445 billion and (ii) Rs 30 billion for Power Holding (Private) Limited) for the purposes of set off/ adjustment of existing PHPL financing facilities.'
Finance Division argues that the fresh facility may be utilised for adjustment of principal amount of the existing facilities only. The IMF mission chief recently stated that energy sector's circular debt is a burden on the state and a big source of uncertainty. Presently, the stock of circular debt is around Rs 1.5 trillion, comprising Rs 818 billion parked in the books of Power Holding Private Limited (PHPL), whereas the remaining amount is termed circular debt (as per the definition).
Power Division has so far not communicated any repayment mechanism for the principal portion of the financing facilities availed by PHPL since 2011-12 therefore after completion of grace period of each facility a fresh guarantee is being issued for deferment of principal amount for another term.
This practice has resulted in an additional cost of millions of rupees being paid on execution of new guarantees ie legal, advisory and arrangement fees etc. Power Division may devise a comprehensive strategy for repayment of principal portion of all the financing facilities availed by PHPL.
According to the Finance Division, the arrangement of fresh facilities may entail charges such as "advisory and arrangement fee" along with other associated fees/charges which may have not been incurred otherwise and the pricing of the fresh facilities could also be different from the existing facilities, resultantly, the transaction may not remain cash neutral. Therefore, the words "cash neutral transaction" may not be used in the summary.
Moreover, any charges arising out of this transaction may be borne by the Ministry of Energy (Power Division) from their own resources.
Finance Division maintains that so far as serving of markup etc in respect of STFF of Rs 30 billion in concerned, it has paid Rs 3.002 billion till June 2017-18 on account of GoP equity in Discos, however, Discos are reluctant to book this equity in their books of accounts and no confirmation in this respect has been received from Power Division so far. Accordingly, no funds were released during 2018-19 and allocated amount for this purpose was surrendered. Furthermore, servicing of markup, principal repayment and all other amounts becoming due and payable in respect of fresh financing of Rs 136.454 billion as well as Rs 30 billion, shall be the sole responsibility of Ministry of Energy (Power Division) )/ PHPL/ Discos and GoP/ Finance Division may not provide any financial support on this account.
The STFF terms and conditions of Rs 136.454 billion have already been approved by the Finance Division while terms and conditions of Rs 30 billion will be processed in due course of time by the Finance Division. PHPL executes the financing agreements with banks and disburses the entire proceeds through CPPA-G for settlement of Discos liabilities towards power producers. All the financing facilities are secured against unconditional and irrevocable guarantees of the government of Pakistan.
