The government has failed to implement Asian Development Bank''s (ADB) ''Forward Plan'', according to which Pepco''s debts of Rs 261 million had to be transferred to the newly established Power Holding Company Limited (PHCL) by September 30, 2009.
Munawar Baseer Ahmad, ADB-CDTA team leader, in a letter, titled ''Pakistan Power Sector Debt Resolution Plan'' (PSDRP) to Special Secretary, Finance, Asif Bajwa, stated that the government would have to take addtiional steps to bring the plan back on track.
"We have reviewed the status and progress with Martin Endelman, Principal Financial Sector Specialist, ADB, Manila, and it has been noted (that) certain time bound actions have not been completed by the target dates due to other priority actions of the Finance Ministry," sources quoted Baseer as saying in the letter. According to him, the focus was completion of the issuance of Rs 90 billion Term Finance Certificates (TFCs).
According to the ADB, non-completion of the debt transfer from Pepco and Wapda to the PHCL by September 30 require the following essential actions: (a) consent of banks to extend date of transfer beyond agreed date of Sept, 30, 2009; and (b) obtaining extension by Pepco from SECP for account closing by September 30 and AGM by October 30 (Statutory requirement of one month from account closing).
Further, ADB has envisioned that on completion of the Rs 90 billion transaction, Finance Ministry will be able to re-focus on the essential actions as per the ''Forward Plan''.
These include issuance of draft ''Letter of Comfort'' to the banks, holding of meeting with the ''banks committee'' to review and finalise, and subsequently obtain the banks consent for transfer of debt in their books with an effective date of June 30, 2009 and other essential actions noted in the ''forward plan''.
Meanwhile, the CDTA team is working with the Ministry of Water and Power, Pepco and Wapda, and interfacing with the banks committee on other essential requisite actions to complete the transaction at the earliest.
The ADB argues that the debt burden (which forms part of the ''power sector circular debt problem'') is the result of GoP''s inability to pay tariff subsidies from FYs 2004-05 through 2008-09, and which severely impacted on the creditworthiness of the public power sector companies and their ability to attract long-term private sector investment into the sector.
To implement this component of the Plan, the GoP, through the Ministry of Water and Power, established ''Power Debt Holding Company Limited'' (PDHCL) outside the power sector, which is wholly owned [and unconditionally guaranteed] by the GoP. The government plans to transfer the debt (plus mark-up) owed by the public-power sector companies to PDHCL by the end of September 2009, value dated 30 June 2009.
GoP also expects securities given by the public power sector companies to banks to be released after the transfer of the debt to PDHCL to ensure a clean transfer. It will service the debt moved to PDHCL through the budget until such time as repayment can be made through other means available to GOP, such as asset sales over the next three to five years, and other instruments. According to the ADB, the process of transferring this debt overhang would rationalise the balance sheets of the public-power sector companies, and would strengthen their financial position and ability to finance their normal operations.