ECC likely to approve Sukuk-II issuance

The Economic Coordination Committee (ECC) of the Cabinet on Thursday (today) is likely to approve issuance of long-awaited Pakistan Energy Sukuk-II worth Rs 200 billion to clear some receivables of power sector entities which is on the brink of default, well informed sources told Business Recorder.

The overdue position of 21 IPPs as of the end of February 2020 stood at Rs 331 billion of which Capacity Payment Price (CPP) over due was Rs 135 billion. Average period for which the CPP remained unpaid was 14 months. Late Payment Interest (LPI) and other overdues stood at Rs 86 billion.

The sources said, to improve the liquidity of power sector and create space for structural improvements, ECC on January 20, 2020 approved an amount of Rs 200 billion as a fresh facility through PHPL against the assets of the Discos/Gencos as collateral through open competitive bidding to procure financing in a fair and transparent manner. Ministry of Finance will provide government guarantee for payment of rental and purchase price at maturity.

When last tranche of Energy Sukuk of Rs 200 billion was released in March 1, 2019, majority of the money was paid under the head of Energy Purchase Price (EPP) and thereby immediately paid to the fuel suppliers, such as PSO and other suppliers for fuel and IPPs were requested to build up the fuel stock in the best national interest due to escalating situation with India. IPPs agreed to this as discharge of their national duty and in the best interest of Pakistan.

When the issue of second PES came under discussion at a meeting in Finance Division, the representative of SECP while adding to the view of SBP stated that the government should promote capital market and this is an opportunity to do so.

"If competitive bidding would have been made, mutual fund, pension fund and other such funds would have been able to invest in these prized assets, i.e. PES," he said, arguing that if PHPL were to repeat the bidding process by calling multiple bids instead of a single bid for the whole amount, it may restrict the value of single bid to a certain amount," said one of the participants.

It was further proposed in the meeting that 80 per cent of the amount could be offered through competitive bidding and remaining 20 per cent can be offered on pro-rate basis.

Referring to the time constraints and apprehensions of Finance Division, the SECP representative suggested to go for bridge financing for two months and to meanwhile complete the process.

The sources further stated that it was pointed out during the meeting that Mutual Fund Association of Pakistan (MUFAP) has raised concerns about calling bids from banks from participation in PES-II. Banks have formed a consortium as they have the ability to underwrite or subscribe to the entire issue size of Rs 200 billion and have flatly refused to allocate any amount to mutual funds.

According to sources, to comply with the directions of the ECC, Power Division suggested amendments in Pakistan Energy Sukuk rules, 2019 to the Cabinet Committee Disposed Legislative Cases (CCLC) recently to ensure transparency in the process.

Power sector sources said that last year IPPs were promised that the next tranche of Energy Sukuk of Rs 200 billion would be released very shortly and it would be allocated in Capacity Power Purchase (CPP) and LPI heads, however, to date that has not happened.

IPPs have now urged the Power Division to allocate the entire amount, i.e., Rs 200 billion in the head of LPI as per the "commitment" and "promise" made to the IPPs last year.