The government has borrowed Rs 96 billion from commercial banks through Power Holding (Private) Limited (PHPL), a subsidiary of Water and Power Ministry, to cap overdue payables below 218 billion as per agreement with the IMF. Power sector's circular debt reached Rs 681 billion as of September 2015 of which Rs 326 billion is a debt between energy sector companies whereas Rs 335 billion is loans taken from different banks by the PHPL and parked in the Discos books.
According to circular debt plan, the government had announced that it would reduce circular debt from Rs 279 (as of end March 2015) to Rs 204 billion by financial year ending June 30, 2018 while keeping within the subsidy target to the power sector of 0.4 per cent of GDP (about Rs 128 billion) and four per cent fiscal deficit. The accumulation of payables are to be reduced to Rs 175 billion in FY 2014/15 to Rs 113 billion in FY 2015/16. Ministry of Water and Power in close liaison with Economic Reforms Unit (ERU) of Finance Ministry headed by Khaqan Najeeb has developed a circular debt capping plan. The actions identified therein aim to gradually reduce payables in the power sector, and implementation of the plan has been initiated. The impacts of the plan are expected to be achieved in the short and medium term, and will be quantified over the coming quarters.
According to the Ministry of Water and Power in end December 2014, overdue payables were kept below the cap at Rs 218 billion. However, this was partially achieved by additional government borrowing through the Power Holding Company Limited (PHCL). The stock of PHCL debt had increased to Rs 335 billion at the end of September 2015 from Rs 239 billion in June 2014.
Surcharges notified were struck down by the Lahore High Court, in appeal; the decision of the Lahore High Court has been suspended pending outcome of the appellate proceedings. The Supreme Court has also ordered payment of outstanding amounts to the Federal Government in twelve equal instalments. Additionally, in October 2014, a surcharge was introduced for DISCOs where NEPRA determined tariffs for FY2014 for residential (300 kWh and above), commercial, industrial, and bulk supply customers were below the national uniform tariffs that were previously notified in October 2013. The amounts collected through surcharge were deposited in a "Universal Obligation Fund" to be kept in an escrow account maintained by the CPPA in order to maintain tariff uniform across the country. This surcharge has also been protected by the decision of the Supreme Court pending final outcome of the appellate proceedings.
In order to further promote operational efficiency and competition, the Federal Government has also approved a program of privatisation of DISCOs and GENCOs, for which Financial Advisors have also been appointed in some cases. The due diligence of FESCO has also been undertaken and multi-year petitions filed in accordance with the Guidelines notified by NEPRA. Ministry of Water and Power issued guidelines on Minimum Energy Performance Standards (MEPS) in December 2014, and ENERCON also published a draft plan for phase out of appliances that do not comply with the MEPS for Fans, Motors, CFLs, and ACs. The impact of these measures is however yet to be quantified.
The Ministry of Water and Power has claimed that subsidies have been eliminated for most consumer categories, with the exception of low-income consumers. The Ministry is also in the process of reviewing the existing consumer categories to ensure that the subsidies which are being given by the Federal Government are actually passed on to deserving consumers.
Economic Co-ordination Committee (ECC) of the Cabinet approved extension in term finance facility of Rs 15.00 billion on the request of Water and Power Ministry as the Discos are unable to pay back the loan.
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