The Economic Coordination Committee (ECC) of the Cabinet will consider the issuance of Rs 200 billion Sukuk bonds next week to pay circular debt in energy sector, it is learnt. Official sources revealed to Business Recorder that the ECC meeting is scheduled for Wednesday where the final report of the three-member committee, which is headed by Dr Ishrat Hussain and was formed to review the Power Division'' s proposal of Sukuk-II of Rs 200 billion, would be considered.
Sources in the Finance Ministry said that the government is working on a plan of raising Rs 200 billion by issuing the Sukuk-II on the same pattern as of Sukuk-I. The amount will be utilised to repay liabilities of the distribution companies through the Central Power Purchasing Agency. The Ministry of Finance will provide government guarantee for the repayment of Rs 200 billion loan. The government had constituted a committee, headed by the Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Hussain and comprising secretaries of finance and power, for reviewing the proposal and submitting its recommendations.
The Power Division had reportedly proposed that in order to improve the liquidity of the sector and create space for structural improvements, an amount of Rs 200 billion may be raised by way of issuance of Pakistan Energy Sukuk-II through Power Holding (Private) Limited on the same pattern as that of Sukuk-1. The committee has scrutinised the proposal and would submit its report to the ECC on Wednesday. There are high chances that the proposal would go through, sources maintained.
The Ministry of Finance has also reportedly convened a meeting of Islamic banks on issuance of Sukuk bonds on July 29. The outstanding liabilities of power sector towards sectoral entities, typically as circular debt is increasing due to various reasons like lesser than regulatory benchmarked performance (both losses and recovery), non-realisation of subsidies, delayed determinations of tariff for end consumer (court stays), and non-payment by provincial governments etc. Another major factor contributing to the buildup of circular debt during the last financial year has been delays in quarterly adjustments determined by the regulator which have been done now.
The sources said it was decided to raise financing from cheaper sources in different phases. The option of Islamic financing through Sukuk was explored and an amount of Rs 200 billion was raised from Islamic banks as fresh facility through Power Holding (Private) Limited by issuance of Sukuk (Sukuk-I) under government guarantee for payment of rental and purchase price at maturity. The ECC approved the facility of Rs 200 billion on January 29, 2019 which was disbursed to various power sector entities.