The International Monetary Fund (IMF) is likely to extend of March 31, 2010 deadline set for the resolution of the most intransigent of all issues ie of circular debt, well-informed sources told Business Recorder. The sources said circular debt is one of the important issues that would be discussed between the top officials of the United States Government (USG) and the Pakistani delegation.
The US team will consist of NSC Senior Director David Lipton and State Department's Co-ordinator for International Energy Affairs, David Goldwyn whereas Pakistan will be represented by the Secretary, Water and Power Shahid Rafi and Secretary Finance, Suleman Siddiqui, besides other officials.
Pakistan will request the USG to use its influence on the IMF to grant yet another extension in the deadline for the elimination of the circular debt, the sources added. Though Finance Ministry appointed a Federal Adjuster as per the directives of the federal cabinet - a decision in compliance with the first Letter of Intent (LoI) submitted by the government of Pakistan on November 20, 2008, the issue is still unresolved with Karachi Electric Supply Company (KESC), province and a couple of Discos unwilling to empower the Federal Adjuster to deduct their funds at source without reconciliation of bills, the sources maintained.
The government has established Power Holding Company Limited (PHCL) under the administrative control of Ministry of Water and Power but the entire debt owed by the power companies has not been transferred to the Holding Company registered with the SECP yet.
The Holding Company issued Rs 85 billion Term Finance Certificates (TFCs) on September 30, 2009 with a government guarantee. TFCs are not traded on the stock exchange. The transfer of the bulk of the remaining stock of circular debt of Rs 216 billion, which was scheduled to be transferred to the PHCL by March 31, is unlikely to materialise. The sources explained the reason for the delay in the transfer of debt as stringent conditions of commercial banks.
However, the Asian Development Bank (ADB) has advised the Finance Ministry not to bow down before these 'unreasonable terms' just for the sake of speed. The sources claim that the ADB and the World Bank will also support Pakistan in the extension of the IMF deadline.
The sources said the ADB's mission which visited last month also expressed dissatisfaction over the performance of power sector especially with regard to appointments to a couple of top positions. The mission, sources said, was of the view that transfer of debt incurred by the public power sector companies for the tariff differential shortfall has been delayed.
The mission agreed that the government should not be cornered into accepting unreasonable terms by the banks just for the sake of expediency. The Ministry of Finance has been servicing the loans from July 2009. According to Pakistan Electric Power Company (Pepco), all the performance contracts between the public power sector companies and the Ministry of Water and Power have been signed.
Pepco, the sources said, indicated to have these systems in place by July 2010. As mentioned in the October aide-memoire, the mission requested for a breakdown of the savings realised by the power sector companies thus far in realising their target of Rs 12.8 billion included in the plan.
As informed by Pepco, this is being achieved through forced savings from the O&M budget but the ADB is of the view that because of this there is a concern that there may not be adequate maintenance funds. Additional savings and inflow from arrears recovery were estimated at Rs 29 billion in October 2009.
The ADB has advised Pepco to co-ordinate with the power sector companies in the implementation of the plan. According to the Pepco's business plan submitted to the ADB, its cost-revenue gap is expected to grow to Rs 177 billion, despite notified increase in tariff and fuel adjustment.
"As planned, Rs 55 billion will be funded through the budget, and Rs 43 billion is expected to be recovered through fuel adjustment tariff increase," the plan said, according to sources. According to Pepco, un-recovered loss of Rs 22 billion during 2009-10 would be passed on to FY 2011 budget, and Rs 57 billion would be collected through quarterly tariff determinations.
When contacted, an official of Finance Ministry requesting anonymity told Business Recorder that the government will not make any change in business plan of Pepco including increase in tariff. However, in case there will be any major variation in oil price, the business plan can be changed. According to him, the Finance Ministry is also issuing new TFCs of Rs 15 billion with regard to circular debt.
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