Resolution of circular debt issue: SBP offers all help to banks

The State Bank of Pakistan has announced that it will facilitate banks in case they require any regulatory support towards early resolution of the circular debt issue. Presiding over a meeting of the Chief Executives of banks at SBP here for resolving the problems being faced by independent power projects (IPPs).
State Bank of Pakistan Acting Governor Yaseen Anwar stressed upon the financial sector to play its due role in resolving the ongoing energy crisis in the country, which is hampering both business activities and life of the common man.
"An early resolution of this critical issue is in the interest of all, including the banking industry itself," he said. He assured the banks that the State Bank would facilitate them in case they required any regulatory support towards early resolution of the circular debt crisis. He pointed out that the Prime Minister's high-powered committee is focusing on remedial steps to develop a long-term solution of the energy crisis. He, however, emphasised that a quick remedy should be sought to overcome the immediate financial requirement.
Abdullah Yusuf, Chairman of independent power producers advisory council, and the representatives of IPPs briefed the meeting about the severity of the issue and identified the factors behind the crisis. They informed the meeting that the Government of Pakistan (GoP) is considering various short and medium term options for resolution of the energy crises faced by the country on a sustainable basis. This includes possibilities like use of coal as a substitute to oil, import of gas as raw material and small hydel power projects.
During the discussion, it was emphasised that the issues being faced by the IPPs are primarily driven by the paucity of short-term liquidity. A number of proposals were also presented to the banks for addressing the issues including allocation of working capital limits to Pepco, extension of L/C time period from 60 days to 90 days for IPPs and conversion of outstanding circular debt into long-term Pakistan Investment Bonds (PIBs).
While appreciating the sincerity of GoP in early resolution of the issue, the banks suggested that the GoP should first focus on resolution of its direct circular debt of rupees 300 billion through issuance of PIBs on priority basis, whereas financing to individual IPPs (existing and incremental) would be taken care of by the banks on case to case basis. They also proposed that the GoP may look into the possibility of incremental financing through PIBs, which is considered to be more viable and would help distribute the responsibility for financing to a larger number of banks/development finance institutions (DFIs).