Circular debt delaying privatisation of two RLNG-based power plants

ISLAMABAD: Amid increasing pressures from the IMF to kick-start privatisation at an accelerated pace, the much-awaited privatisation of two RLNG power plants has hit major snags because the monster of circular debt of these two power plants peaked at Rs145 billion. The eruption of the COVID-19 pandemic resulted in privatization plan losing steam when Pakistan was very close to moving ahead with the sale of two RLNG based power plants when the circular debt was just standing at Rs10 billion before March 2020. The government had approved the privatization of re-gasified liquefied natural gas-based power plants, including 1,233 megawatts Balloki Power Plant and another 1,230 MW Haveli Bahadur Shah power plant, which have already been cleared by the Cabinet Committee on Privatisation for its 100 percent sell-off in the next two years. Presently, the state-run National Power Parks Management Company Ltd (NPPMCL) owns and operates the plants. “Now the government wants re-financing of debt of two RLNG plants but the commercial banks are reluctant to refinance the debt mainly because of accumulation of circular debt rising to Rs145 billion," representatives of some banking sectors disclosed while talking to The News on Sunday.

The Privatization Ministry, according to sources, told the IMF that they would be moving ahead with the privatization of Heavy Electrical Complex (HEC) and Pakistan Steel Mills (PSM). There are many ifs and buts but the process of privatization would kick-start, added the sources.

On the issue of Services Hotel, the sources said that the height of building area was curtailed at 245 feet but some cabinet ministers raised objections that its height should be 500 feet. However, the Aviation Division again certified that the height of Services Hotel should be 245 feet because the airspace was used by aircraft. Height of more than 245 feet could become dangerous for aviation purposes. Now the federal cabinet would take the final decision in its upcoming meeting, added the sources.

Pakistani authorities apprised the IMF on the occasion of the last review report that against the backdrop of Covid-19 and economic uncertainty, they have not been able to finalize the privatization of two LNG power plants by end-FY 2020 as previously planned. It was now expected to complete the process by end-February FY2022, with proceeds still to be channeled to debt reduction and poverty programs. In parallel, it was stated that the country was progressing with the privatization of two small public banks and expected to complete these operations by end-December 2021. "Finally, we are also assessing options to divest Pakistan International Airlines’ (PIA) non-core assets (two hotel properties)," said the sources.

The IMF in its assessment had stated that while the planned privatization of State-Owned Entities (SOEs) could not take place due to heightened uncertainty, the authorities continued to improve SOE transparency and monitoring.

The process of strengthening the legal and regulatory frameworks of SOEs is at an advanced stage. Benefitting from Fund TA, the authorities submitted a new SOE law to the Parliament in March 2021, aiming to define a rationale for state ownership, ensuring commercially sound SOE operations and regulating oversight and ownership arrangements.

Special audits of key SOEs — Pakistan Railways, Pakistan Steel Mills and Pakistan International Airlines — were finalized in 2020 and the audit reports were published. With the help of the World Bank, the authorities have completed a triage of SOEs, which would help expedite the process of privatization once the crisis abates.