Rs 7.487 billion facility to power sector: Finance to take hold of servicing of mark-up, principal repayments

Finance Division will pick up servicing cost of mark-up as well as principal repayments and all other amounts due and payable with respect to sovereign guarantee for Rs 7.487 billion term finance facility for the power sector, it was learnt.
Ministry of Water and Power has requested the Economic Co-ordination Committee (ECC) of the Cabinet for approval of sovereign guarantee by Finance Ministry for Power Holding Company. Water and Power Ministry added that Power Holding (Private) Limited is a public sector entity without assets and is responsible for arranging a loan amounting to Rs 7.487 billion for power sector companies, which are facing financial problems. The Ministry of Finance will provide government guarantee for repayment of loan as well interest for the facility amounting to Rs 7.487 billion arranged through a consortium of local banks. The servicing of mark-up, principal repayments and all other amounts becoming due and payable with respect of the subject facility shall be the responsibility of Finance Division.
Water and Power Minister further stated that the Finance Division in a letter dated July 2015 has agreed to take-up the liability of servicing the proposed finance facility, as an amount of Rs 72 billion remains unpaid under various heads of subsidies during 2013-14 and 2014-15. The terms and conditions for the subject facility have been approved by the Finance Division and the facility has been executed. The amount has been utilised for the purposes of funding the repayment liabilities of the distribution Companies. The tenor of the facility is up to fifteen months with no renewal or rollover of the facility.
The government also acknowledged that power distribution companies are facing financial problems in repayment of long outstanding power purchased dues to Central Power Purchasing Agency (CPPA) mainly due to high distribution losses, less subsidy budgeting, low revenue collection and lower applicable tariff, which do not fully cover the cost of services delivered. Additionally, increase in thermal generation through furnace oil is also adding to cost of generation which is not being recovered through tariff. All these factors are affecting the cash flow of distribution companies and limiting their ability to settle their power purchase liability towards CPPA. Therefore, CPPA cannot pay the power purchase cost to IPPs and GENCO which ultimately leads to reduction in power generation/increase in load shedding.
Payments to GENCOs/ IPPs are made out of revenues generated by the distribution companies from the consumers including fuel price adjustment (FPA) and various subsidies from Ministry of Finance. Due to inadequate fiscal space available for energy sector subsidies in the budget, the distribution companies will have to arrange funds through borrowing from the banks in order to discharge their liability towards CPPA.
Therefore, the financing arrangement for distribution companies will help these entities to fulfil their financial obligations towards CPPA, which will ultimately help the GENCOs/IPPs to discharge their liabilities towards fuel suppliers. The loan has been arranged on behalf of power distribution companies by Power Holding (Pvt.) Limited (PHPL) through syndicated term finance facility from consortium of local commercial banks.