Circular debt issue: 18 banks give govt term sheet for Rs1.275tr credit line

ISLAMABAD: Eighteen commercial banks have submitted terms sheet to the government for providing Rs1,275 billion loan to the Central Power Purchase Agency (CPPA), a state-owned entity, for resolving the circular debt of Rs2,400 billion.

“Under the term sheet, the commercial banks would provide fresh loans of Rs617 billion at 10.50-11 percent mark-up rate based on KIBOR-0.90 basis point which will be paid in six years’ time by electricity consumers through Debt Service Surgery (DSS),” one of the chief executives of the 18 top banks told The News.

“The consumers will pay Rs3.23 per unit in the bills as DSS. The commercial banks would deduct the DSS amount at source at the time of the payment of electricity bills by consumers. At source deduction on paying bills will improve the risk profile of the banks,” the chief executive said, adding: “We are providing the loan of Rs617 billion to CPPA this time as IMF has allowed the banks to extend credit lines to state-owned corporations.”

The commercial banks earlier provided power sector loan of Rs658 billion to the government which is parked in PHL (Power Holding Limited). If the fresh loan of Rs617 billion is added, then total loan will hike to Rs1,275 billion.

The banks have plenty of liquidity; however, the terms sheet is with the finance ministry and CPPA for review and decision on it. “We are going to provide a fresh loan of Rs617 billion for lending purposes to CPPA, a state-owned company, with no government guarantee as there are receivables of the entity.”

Earlier, the banks extended a loan of Rs658 billion to the government’s Power Division under the investment purposes on the government guarantee, but the new credit line of Rs617 billion is being extended to CPPA without government guarantee.

“The terms sheet has been extended after consultation with major banks and Pakistan Banks Association after talks with the State Bank of Pakistan and the finance ministry.”