ECC okays Rs200bn Islamic banks facility to settle circular debt

  • Committee decides using RLNG to avoid gas load-shedding during winter

ISLAMABAD: In a move to settle the ever-ballooning circular debt in the power sector, the Economic Coordination Committee (ECC) on Tuesday has allowed the power ministry to create a Sharia-compliant Rs100-200 billion Islamic banks’ facility through Power Holding (Private) Limited.

As per the summary of the Ministry of Energy (Power Division), the government has decided that an amount of Rs100-200 billion may be raised from Islamic banks as a fresh facility through Power Holding (Private) Limited in order to improve the liquidity of the sector and to create space for structural improvements.

Through this plan, the government would obtain fresh loans from a consortium of Islamic banks against the assets of the distribution companies/generation companies as collateral. The assets have been identified by the respective DISCOs and GENCOs which were forwarded to the consortium of banks, led by Meezan Bank Limited, for further shortlisting for stage one (loan of Rs100 billion) facility. The banks have identified 43 assets which have been forwarded to the approved evaluators of Pakistan Banks’ Association for their market evaluation, recommended by the consortium of banks. The syndicate of Islamic banks has also forwarded a tentative term sheet for Rs100-200 billion.

It is pertinent to mention that a syndicated term finance facility amounting to Rs607.035 billion has already been executed through Power Holding (Private) Limited for the repayment of liabilities of the DISCOs.

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According to the summary, the amount would be utilised for the purposes of funding the repayment liabilities of the distribution companies through Central Power Purchasing Agency Limited. The Ministry of Finance will provide a government guarantee for repayment of loan as well as interest, for the facility amounting to Rs100-200 billion, arranged through a consortium of local Islamic banks.

As per the documents, the expected size of financing facility would be Rs200 billion including Rs100 billion financing of underwritten by the six Islamic banks Rs100 billion available as Green Shoe option on best effort basis by the Islamic banking industry. However, the financing size will be accurately determined after analyzing the financial statements of power companies and after conducting valuation of their assets.

The outstanding liabilities of the power sector towards sectoral entities, typically known as circular debt, are increasing owing to various reasons including less than regulatory benchmarked performance, non-realization of subsidies, delayed determinations of tariff for end consumer (court stays), payment by provincial governments etc. Another factor that contributed to the build-up of the CD during the last financial year has been the quarterly adjustments not determined by the regulator.


No gas load-shedding in winter

Keeping the shortfall of gas in view, a scheduled load-shedding was expected during the next three months but the ECC has decided to go for re-gasified liquefied natural gas (RLNG) to meet the rising demand of gas. The committee also announced that there will be no load shedding of gas this winter.

The ECC was given a presentation by the Petroleum Division secretary on the winter gas load management plan. ECC allowed SNGPL to utilize RLNG in the system so that domestic and commercial consumers could be facilitated.

The ECC also decided that the recent increase in gas prices will not be applicable for tandoors, and that they will continue to pay their gas bills on the previously applicable rates. The decision has been taken in view of the concerns that the increase in gas prices was leading to an increase in the prices of food items.

Meanwhile, the ECC also approved a government guarantee to National Power Parks Management Company (Pvt) Ltd (NPPMCL) to raise loan of Rs38.00 billion from financial institutions to meet remaining cost of its two power plants.

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Ghulam Abbas
The writer is a member of the staff at the Islamabad Bureau. He can be reached at [email protected]
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