Rising circular debt: Bids received by Power Division for Rs200b SUKUK-II scrapped

ISLAMABAD: The government has done away with the Power Division’s initiative for launching Sukuk-II of worth Rs200 billion based on competitive bids to trim down the circular debt and asked for inclusion of those banks which want to separately participate in the bids by offering Rs20-25 billion loan each. Earlier, the Power Division had sought bids based on competitive bids from banks for raising Rs200 billion and in return a consortium of banks came up with interests rate of KIBOR+ 0.78.

And after that the Power Division sensitized the Finance Division in a meeting held some days back, which was also attended by representatives of SECP and State Bank of Pakistan. In the meeting, it was observed that only a consortium of banks came up with its bids at interest rate of KIBOR+0.78 against the earlier amount of Rs200 billion, which was raised by the consortium of Islamic banks headed by Meezan Bank under SUKUK-I at rate of KIBOR + 0.8.

It was decided that the Power Division should not seek the bids for raising Rs200 billion from one consortium but up to Rs200 billion and this is how the banks would separately come up with their own rates by offering the loan available with them. No bank has possessed Rs200 billion to offer. When a consortium or cluster of banks comes with its bid, its rate is at the higher side so the banks that want to offer the loans in the range of Rs20-25 billion each are left out. Some want to offer more loans than Rs25 billion each. The officials said that Mutual Funds also desired to offer loans with lower rate.

When contacted, Secretary Power Division Irfan Ali confirmed saying that the Finance Division has scrapped the initiative taken by the Power Division based on competitive bids for raising Rs200 billion under SUKUK-II. He said under competitive bids regime, a consortium of banks came up with bid at KIBOR+0.78 and there are many banks which are left out but wanted to offer loans at a lower rate. So the Power Division will again give advertisements in national dailies and at the moment the authorities’ concerned are finalising the terms sheet for all banks who want to participate in bids individually.

The amount of Rs200 billion will be used to reduce the circular debt that reached Rs1.9 trillion by January 31, 2020 by offloading the liabilities of various entities in the power sector. The existing volume of loans and liabilities parked in PHPL (Power Holding Private Limited) currently stand at Rs807 billion.

Against the loan of Rs200 billion, the government will have to pledge the assets of DISCOs and GENCOs and more importantly servicing of the new financing facility will be done by the electricity consumers through imposition of surcharge in tariff. For the six months or tariff determination whichever is earlier, the mark-up servicing will be made by the 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, etc.

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 the power sector, the Power Division submitted the summary on June 25, 2019, for issuance of second tranche i.e Pakistan Energy Sukuk-II, amounting to Rs200 billion for power sector liquidity through the Power Holding Limited. The ECC of the Cabinet considered the proposal of Power Division on June 26 2019, constituted a committee under the chairmanship of Adviser to the Prime Minister on Institutional Reforms & Austerity comprising Secretary Finance Division and Power Division, to review the proposal in holistic manner and submit recommendations thereon to the ECC for consideration.

In the light of directions of the committee, the official said the Government of Pakistan had decided to obtain a fresh loan from the consortium of Islamic banks by way of issuance of Pakistan Energy Sukuk-II, against the assets of DISCOs and GENCOs as collateral through open competitive bidding as advised by the Office of the Director General Audit (Power) while conducting the audit of Rs200 billion Pakistan Energy Sukuk-I executed on March 1 2019 so that procurement of financing is conducted in a fair and transparent manner. Under the new scenario, the competitive bids will be received from banks and institutions which want to separately participate in the process to ensure lower rates for the required amount of Rs200 billion.