The government on Thursday approved borrowing of Rs100 billion from banks to offset the impact of deferring increase in electricity prices for six months and also decided to compensate oil importers for exchange rate losses.
The borrowing decision will have an adverse impact on electricity prices on account of recovery of interest on loans from power consumers. Prices of petroleum products will also go up as the exchange rate losses will be built into the prices.
Headed by Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh, the Economic Coordination Committee (ECC) took the decisions, which in the longer run would burden both electricity and petroleum product consumers. The ECC also decided to bail out Pakistan State Oil (PSO) by providing it with cash liquidity to avoid default as the state-owned company's receivables had surged to Rs257 billion.
On the request of the Power Division for a syndicated term finance facility of Rs100 billion, the request was referred to the finance secretary for facilitation, according to a Ministry of Finance statement.
The government had to raise Rs100 billion to keep power generation and distribution companies afloat after Prime Minister Imran Khan decided in January this year to freeze electricity prices for six months.
The ECC also approved the postponement of monthly and quarterly fuel cost adjustments in electricity bills of consumers till June 2020. The whole exercise would have a total impact of Rs151 billion on the government, said the Ministry of Finance.
However, this amount is recoverable from the consumers and there will be no effect on the budget.
It was a condition of the International Monetary Fund (IMF) to raise power tariffs aimed at controlling the increasing circular debt that has already touched Rs1.9 trillion - an addition of over Rs750 billion during the current Pakistan Tehreek-e-Insaf (PTI) government alone. In total, the government will raise Rs300 billion from banks and the corporate sector within this month aimed at retiring some of the circular debt.
The ECC has already approved borrowing of Rs200 billion by floating domestic Islamic bonds called Pakistan Energy Sukuk-II. Due to some procedural difficulties, the loan could not be arranged earlier.
The ECC approved the appointment of a valuator for Pakistan Energy Sukuk phase-II (Rs200 billion) as the company had already done an extensive exercise for the valuation of multiple government assets, said the Ministry of Finance. This money is also being arranged to pay off circular debt, which the PTI government has failed to control, like its predecessor.
The outstanding unsettled circular debt currently stands at around Rs1.1 trillion, excluding Rs804 billion borrowed from banks but parked in a holding company. The total size of the circular debt comes to Rs1.9 trillion. Loans of Rs200 billion will be obtained from a consortium of Islamic banks against assets of power generation and distribution companies, according to Power Division officials. The assets have been identified by the generation and distribution companies.
In order to cover the losses incurred by PSO and the oil sector due to devaluation of Pakistani rupee, the ECC, in principle, agreed to a maximum period of 60 days for the adjustment of exchange gain or loss with effect from March this year, said the finance ministry.
The ECC directed the Power Division to resolve the issue in consultation with the Finance Division, it added. This will lead to an increase in prices of petroleum products as the losses will be built into the price determination formula.
Special Assistant to Prime Minister on Petroleum Nadeem Babar, who paddled the proposal, did not respond to the question about exact implications of the exchange rate losses for the consumers. The outstanding amount on account of exchange rate losses was Rs29 billion.
A day before, the ECC allowed an increase in electricity prices to compensate for the exchange rate losses being sustained by foreign investors in the power sector.
In order to keep PSO afloat, the ECC also approved the provision of cash to the oil marketing company in the range of Rs45 to Rs50 billion.
The ECC directed the finance secretary to consult with the Power Division and help in retirement of some of the liabilities of PSO for running its business in this difficult situation, according to the finance ministry. The ECC approved Rs13.8 billion in technical supplementary grants for various entities. An additional amount of Rs1.7 billion has been given for parliamentarians' schemes, taking total annual allocation to Rs30 billion for this year.
For the Special Security Division, (South), being deployed for the China-Pakistan Economic Corridor (CPEC) security, a Rs11.5-billion additional budget was approved by the ECC.
The ECC set up a committee to review the proposal of economic relief package for mitigating the effect of shortfall in recoveries due to reduced demand of energy and late recoveries amid the Covid-19 outbreak. The funds are required for covering fixed costs of the sector.
© Pakistan Press International, source Asianet-Pakistan