Power projects: Banks are put off financing by rising circular debt

ISLAMABAD: The country's commercial banks have reportedly refused to finance power projects due to historic energy sector circular debt, which has reached Rs2.327 trillion as of August 31, 2021.

This was disclosed by the top officials of Ministry of Energy (Power Division). The Ministry of Energy has sought cash development loan to Jamshoro Power Company Limited (JPCL - GENCO -I) for 2 x 660 MW imported coal fired power project, which was started with the financing of Asian Development Bank (ADB).

On September 10, 2021, Power Division informed the Executive Committee of National Economic Council (ECNEC) headed by Finance Minister, Shaukat Tarin, that the project was considered by the Central Development Working Party (CDWP), in its meeting held on June 6, 2021 and considering the request of Power Division, decided that a summary/position paper to the ECNEC would be submitted recommending the power Division's proposal for change in mode of financing of Rs21.500 billion as Cash Development Loan (CDL), allowing Rs2.355 billion as CDL through Technical Supplementary Grant (TSG) during financial year 2020-21 against surrendered amount of Power Division with the following recommendations:

(i) Power Division will reprioritize their allocation of Public Sector Development Programme (PSDP) for adjustment of remaining amount of Rs19.145 billion for Jamshoro coal project to reflect as CDL during the upcoming fiscal years; (ii) Jamshoro Power Company Limited (JPCL) GENCO-I/Power Division will hire the services of independent consultants for advising Power Division on the overall financial restructuring and management of the project and;(iii) Power Division will hold an internal inquiry for the implementation and poor financial management of the project and submit report to the CDWP within three months.

Energy sector’s circular debt soars to Rs2.28trn

The ECNEC was informed that the CDWP approved the project with the above three conditions. It was observed that the requirement of Rs19 billion may be arranged through internal reallocation.

However, the Power Division noted that there is hardly any financial space for reallocation of allocated amount. It was also noted that the project is feasible for bank financing but due to the circular debt issues, banks are not willing to finance it.

The sources said, Power Division is even unable to make due payments to the Chinese companies, which have established power projects in Pakistan.

The officials confided to this scribe that Central Power Purchasing Agency Guaranteed (CPPA-G) is facing financial problems due to huge circular debt issue and inability to clear liabilities of Chinese investors. Private Power & Infrastructure Board (PPIB) which is responsible to facilitate power sector investors, is also regularly writing letters to the Power Division and CPPA-G for due payment to the Chinese company but nothing is being done to financial crunch.

Energy sector circular debt: Govt irked by 'twisted' facts, figures

According to sources, Discos' recovery has also declined during financial year 2020-21 as compared to 2019-20 which will also increase the stock of circular debt. The Finance Minister, Shaukat Tarin, had stated that option of such financing shall be explored after discussion with the banks

The ECNEC held a threadbare discussion on the proposal of Ministry of Planning, Development and Special Initiatives titled "Cash Development Loan to Jamshoro Power Company Limited (JPCL - GENCO -I) for 2 x 660 MW coal Fired power project," and decided that the Power Division will process the case, in consultation with the Finance Division for arrangement of financing facility for the project from the National Bank of Pakistan/other commercial banks as front loading measure. This funding shall be then back loaded through next year's Public Sector Development Program.

Copyright Business Recorder, 2021