Ministry of Water and Power has reportedly planned to raise around Rs 185 billion loans from private banks afresh to pay existing loans as power Distribution Companies (Discos) have expressed their inability to pay loans due to financial constraints, well-informed sources told Business Recorder . Ministry of Water and Power, sources said, has submitted four or five similar summaries to the Economic Co-ordination Committee (ECC) of the Cabinet. These summaries were part of the agenda of the ECC held on July 18, 2017 but did not come under consideration.
Ministry of Water and Power, in its summaries, has claimed that the power sector has shown marked improvement in its performance in the past two years. The recoveries which remained in the range of 88%-89%, have now crossed 93% in 2015 and 2016, the highest in the history of the sector. Similarly, the T&D losses which were around 19% in 2014 came down to 17.8% in December 2016. These two accounts by themselves have provided positive cash flows to the power sector totaling Rs 116 billion in the past two years. Gencos were making a cumulative loss of Rs 7.785 billion in 2013-14, and not only overcame their losses but reported a profit of Rs 5.772 billion in 2015-16.
All these achievements as well as historic drop in oil prices helped to keep the power sector's circular debt within the range of 320-330 billion from December 2014 till June, 2016. These two years (2014-15 and 201 5-16) were the only fiscal years in the past more than a decade, when no losses of the power sector were paid out of the federal budget which on average used to be around Rs, 200 billion annually in the past. This brought down power sector's burden on national budget from 2.4% of GDP in 2012-13 to around 0.7% of the GDP in 2014-1 5, (only subsidy allocations).
The other stream of cash flow into the power sector are the subsidies payments out of federal budget, which are announced by the government from time to time, with an aim to provide relief to low income groups, less developed regions and to allow competitive cost of production to industries and agriculture. A large part of subsidies payment is through imposition of Tariff Rationalization Surcharge (TRS) on high end consumers. A reconciliation process is going on between the Ministry of Water and Power and the Ministry of Finance over some subsidy claims and arrears which are expected to be settled in the coming months.
Pursuant to the approval of the Economic Co-ordination Committee (ECC) of May 16, 2014 syndicated term finance facility for Rs 30.95 billion was executed between Power Holding (Private) Limited and consortium of local commercial banks for the purposes of funding the repayment liabilities of the Discos on the terms and conditions approved by the Finance Division.
The major terms and conditions of Rs 30.95 billion financing facility was disbursement of 25.70 billion on May 21, 2014 and Rs 5.25 billion on June 6, 2014. The tenor was up to five years, inclusive of grace period of twenty four months from the first disbursement date with grace period applicable to principal repayments only.
The loan was obtained at 6 month KIBOR (base rate) + 2.00% per annum (spread). However, there was one percent rebate/reduction in spread, in case installment payments are made within 30 days of the due date. Mark-up loans had to be paid in installments on a semi-annual basis whereas principal had to paid in 6 equal semi-annual installments after completion of grace period.
The sources said, Ministry of Water and Power has imposed Debt Service Surcharge (DSS) on electricity consumers for the purposes of payments on account of mark-up, to the syndicate as and when due, in respect of the PHPL financing facilities including Rs 30.95 billion syndicated term finance facility. However, due to limited available fiscal space and liquidity, power sector does not have the capacity to pay principal installments. Ministry of Water and Power and Ministry of Finance are working on a settlement plan for the PHPL financing facilities. The grace period of twenty four months of Rs 30.95 billion syndicated term finance facility has been completed and payment of semi-annual installments on account of principal portion amounting to Rs 5,158,333,333 has become payable semi-annually.
The Distribution Companies (Discos) / power sector will have to arrange funds through borrowings from local commercial banks in order to discharge their liability towards syndicate on account of principal installments in respect of Rs 30.95 billion syndicated term finance facility. The proposed loan will be arranged on behalf of power distribution companies by Power Holding (Pvt.) Limited through a syndicated term finance facility and this will be cash neutral transaction. The consortium of local banks comprising Meezan Bank Limited, Allied Bank Limited & Bank of Khyber has agreed to provide fresh financing facility of Rs 30.95 billion and in this regard draft term sheet received from the syndicate.
Power Holding (Private) Limited is a public sector entity without assets and will be responsible for arranging loans amounting to Rs 30.95 billion for power sector companies for the purposes of adjusting the existing facility of Rs 30.95 billion executed pursuance to the Economic Co-ordination Committee (ECC) of the Cabinet. In the other four summaries, with similar wording, Water and Power Ministry has sought permission to get Rs 40 billion, Rs 25 billion, Rs 7 billion and Rs 82 billion totaling it to Rs 154 billion from other consortium of banks. The ECC is expected to consider these summaries during its next meeting. The sources said Finance Ministry has agreed only to summary of Rs 30.95 billion and asked Water and Power Ministry to share terms and conditions of remaining loans.