Govt mulls up to Rs200bln sukuk for circular debt

ISLAMABAD: Government planned to issue an Islamic bond to clear mounting circular debt that’s been haunting energy sector for long with the size of the instrument estimated between Rs100 to 200 billion, people familiar with the matter said on Tuesday.

They said the Economic Coordination Committee of the cabinet took the decision at a meeting attended by the Finance Minister Asad Umar.

“ECC gave approval in principal to Ministry of Energy (Power Division) to raise Islamic financing for the power sector through Power Holding (Pvt) Limited,” a finance ministry’s statement said.

Sources said the amount is likely to be raised from Islamic banks having surplus liquidity to help distribution companies settle their liabilities. The loans will be obtained against the assets of distribution and power generation companies.

The sources said the government has already identified 43 assets to be put as collaterals and which were forwarded to a consortium of Islamic banks led by Meezan Bank for consideration.

The financing will still be much less than the power sector’s overwhelming circular debt that reached around Rs1.2 trillion in the five years after the previous government cleared Rs480 billion on this account in its early days.

The ECC further decided that there would be no gas load shedding during the current winter. It allowed Sui Northern Gas Pipelines Limited (SNGPL) to utilise regasified liquefied natural gas (RLNG) to meet consumption requirement of domestic and commercial consumers. Gas utilities would be allowed volumetric adjustment and financial impact on cost neutral basis in accordance with the ECC’s decision in May.

The meeting also allowed SNGPL to inject RLNG for consumption by domestic and commercial consumers if the Oil and Gas Regulatory Authority allows volumetric adjustments.

The ECC was told that there would be severe gas shortage of around 2.220 billion metric cubic feet/day for the December to February period. The committee approved a government guarantee to the National Power Parks Management Company to raise Rs38 billion in loan from financial institutions to meet remaining cost of its two power plants. State-owned National Power Parks Management Company is mandated to establish and operate the two RLNG-based power generation plants in Balloki of district Kasur and Haveli Bahadur Shah of district Jhang with capacity of 1,223 megawatts and 1,230 megawatts, respectively.

In February 2016, the Executive Committee of the National Economic Council approved both the power plants at a total cost of Rs190.440 billion. Federal government provided Rs114 billion as cash development loan for the project at the standard terms during the fiscal years of 2015-16 and 2016/17. National Power Parks Management Company was advised to arrange the funds on self- financing basis to meet the remaining requirements of funds.

Subsequently, the federal cabinet approved the acquisition of two RLNG-based power plants by Pakistan Development Fund Limited (PDFL), which acquired the cash development loan as advance against equity injection into the RLNG project. PDFL also provided short-term loan of Rs32.738 billion to partially meet the project’s funding requirements.