The way to go

Two hundred billion rupees were raised through Sukuk-II at competitive book building at Pakistan Stock Exchange at a rate below Kibor. Advisor to the Prime Minister on Finance Dr Hafeez Sheikh tweeted that this would save the government 18 billion rupees over 10 years in debt servicing with the transaction oversubscribed by 70 percent. He added, "excellent team efforts by the Ministry of Finance Debt Office, Securities and Exchange Commission of Pakistan (SECP), State Bank of Pakistan (SBP) and Pakistan Stock Exchange (PSX)." This outcome is greatly appreciated and one would hope that the government takes this approach to future borrowings as well.
In the Economic Coordination Committee (ECC) of the Cabinet held on 29 January 2019, chaired by the then Finance Minister Asad Umar, it was decided to issue 200 billion rupee Sukuk-I through the Power Holding Pakistan Limited where the power sector's debt is parked. A consortium of banks headed by Meezan Bank offered a rate of Kibor+0.8 on a competitive basis, and the proceeds were used for paying outstanding liabilities of various power sector entities through the Central Power Purchasing Agency (CPPA-G) Limited.
The Power Division reportedly informed the Finance Division earlier this year, which was also attended by representatives from SECP and SBP that a consortium of banks had bid for Sukuk-II at Kibor plus 0.78. By June 2019, the power sector submitted a summary for the issuance of a second tranche notably Sukuk-II, of the same amount as Sukuk-I. The ECC set up a committee under the chairmanship of the Advisor to the Prime Minister on Institutional Reforms and Austerity and including Secretary Finance and Power Division to examine the proposal in a holistic manner and submit recommendations to the ECC.
The recommendation of the Ishrat Husain-led committee was to raise another 200 billion rupees as a fresh facility through issuance of Sukuk-II against assets of Discos/Gencos as collateral through open bidding to procure financing in a fair and transparent manner. The Finance Division was proposed to (i) provide a government guarantee for repayment as well as profit; (ii) servicing to be done through a surcharge and for the interim six months or tariff determination whichever is earlier, the mark-up servicing will be made by the government which will be treated as government equity in Discos; and (iii) to finalise stock handling plan the 200 billion rupee Sukuk will be a component of the plan. It is unclear whether any of these recommendations were taken on board as details are yet to be released.
Be that as it may, while Business Recorder is appreciative of the approach taken for Sukuk-II yet disturbingly there has been little, if any, improvement in the power sector's governance. Reforms that have time and again been identified with the assistance of donor agencies with several administrations, including the incumbent, pledging to implement them yet to date the power sector epitomizes poor governance reflected by rising transmission and distribution losses with a burgeoning circular debt, estimated at around 2 trillion rupees to-date, that creates the need for borrowings.
To conclude, the Sukuk-II issuance was undertaken successfully and may be the way forward in terms of future borrowing. However, one would hope that the government focuses more attention on sorting out the myriad issues plaguing the power sector that would take away the need for the sector borrowing in future.