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February 25, 2020

Circular debt: Govt gearing up to launch Sukuk-II for Rs200b

Top Story

February 25, 2020

ISLAMABAD: The Power Division is in the process of gearing up to launch the Sukuk-II for raising Rs200 billion after getting competitive interest rate of the loans from a consortium of banks and will soon submit a summary to the ECC (Economic Coordination Committee) for approval. The amount will be used to reduce the circular debt that, according to the government, reached Rs1.8 trillion by offloading the liabilities of various entities in the power sector. The existing volume of loans and liabilities parked in the PHPL (Power Holding Private Limited) currently stand at Rs804 billion.

The consortium of local banks, mostly Islamic ones, will pledge the assets of DISCOs and GENCOs against the loan and more importantly servicing of new financing facility will be done by electricity consumers through imposition of surcharge in tariff. For six months or tariff determination whichever is earlier, mark-up servicing will be made by government and the same will be treated as government equity in DISCOs. The Ministry of Finance will provide government guarantee for repayment of loan as well as profit or interest for the facility amounting to Rs200 billion.

"Yes, we have got competitive interest rates if compared with the rates of Rs200 billion earlier arranged loan of the same amount under Sukuk-I at Karachi Interbank Offered Rate (Kibor) plus a margin of 80 basis points. Now we will pay less interest rate on the financing of another Rs200 billion under Sukuk-II but the difference is not so big," a top official of the Power Division told The News.

However, spokesman of Power Division when contacted said: “The competitive bids on Rs200 billion loan with mark-up rates from various local banks are still under evaluation and these cannot be disclosed at the moment since the competitive bidding requires secrecy.” The official said that while pursuing the decisions of the Economic Coordination Committee (ECC) held on January 29, 2019, Sukuk-I of Rs200 billion was issued through the Power Holding Limited on March 1, 2019 and disbursement proceeds were utilized by paying the outstanding liabilities of various sectoral entities through the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G).

And to further ease out the liquidity crunch of power sector, the Power Division submitted a summary on June 25, 2019, for issuance of second tranche i.e Pakistan Energy Sukuk–II, amounting Rs200 billion for power sector liquidity through Power Holding Limited. The ECC of the Cabinet considered the proposal of the Power Division on June 26, 2019, constituted a committee to review the proposal in holistic manner and submit recommendations thereon to the ECC for consideration.

The matter of issuance of second tranche such as Sukuk–II for Rs200 billion was deliberated by the committee in a holistic manner and Adviser to the Prime Minister on Institutional Reforms and Austerity submitted his report. In the light of directions of the committee, the official said, the Government of Pakistan has now decided to obtain the fresh loan from a consortium of Islamic banks by way of issuance of Pakistan Energy Sukuk-II, against the assets of the DISCOs and GENCOs as collateral through open competitive bidding.