Electricity projects: banks are put off by the increase in circular debt

ISLAMABAD: The country’s commercial banks have reportedly refused to finance power projects due to historic circular debt in the energy sector, which reached Rs 2.327 trillion as of August 31, 2021.

This was revealed by senior officials of the Ministry of Energy (Energy Division). The Ministry of Energy requested a cash development loan from Jamshoro Power Company Limited (JPCL – GENCO -I) for a 2 x 660 MW imported coal-fired power plant project, which started with Bank financing. Asian Development (AfDB).

On September 10, 2021, the Electricity Division informed the Executive Committee of the National Economic Council (ECNEC) headed by the Minister of Finance, Shuakat Tarin, that the project had been reviewed by the Central Development Working Group (CDWP) ), at its meeting held on June 6. 2021 and taking into account the request of the Electricity Division, decided that a summary / position paper to ECNEC would be submitted, recommending the proposal of the Electricity Division to change the funding mode of 21,500 billion Rs as a cash development loan (CDL), enabling Rs2.355 billion in CDL through an additional technical grant (TSG) in fiscal year 2020-21 against the ceded amount of the Power division with the following recommendations:

(i) The Electricity Division will re-prioritize its Public Sector Development Program (PSDP) allocation for the adjustment of the remaining amount of Rs 19.145 billion for the Jamshoro Coal Project to be reflected as CDL during future exercises; (ii) Jamshoro Power Company Limited (JPCL) GENCO-I / Power Division will engage the services of independent consultants to advise Power Division on the overall financial restructuring and project management and; (iii) Power Division will organize an internal investigation for the implementation and financial mismanagement of the project and submit a report to the CDWP within three months.

Circular debt in energy sector climbs to 2.28 billion rupees

ECNEC has been informed that the CDWP has approved the project with the above three conditions. It has been observed that the requirement of Rs19 billion can be arranged through internal reallocation.

However, the Energy Division noted that there is virtually no financial space for reallocation of the allocated amount. It was also noted that the project is feasible for bank financing but due to the circular debt issues, banks are unwilling to finance it.

According to the sources, the Power division is not even able to make payments owed to Chinese companies, which have established power projects in Pakistan.

Officials told the scribe that the Central Power Purchasing Agency Guaranteed (CPPA-G) is facing financial problems due to a huge circular debt problem and the inability to write off debts from Chinese investors. The Private Power & Infrastructure Board (PPIB), which is responsible for facilitating investors in the electricity sector, also regularly writes letters to the Electricity Division and CPPA-G for payment owed to the Chinese company. , but nothing is being done to remedy the financial crisis.

Circular debt in the energy sector: government angered by “twisted” facts and figures

According to sources, the takeover of Discos also declined in FY2020-21 compared to 2019-20, which will also increase the stock of circular debt. Finance Minister Shaukat Tarin said the option of such funding will be explored after discussion with banks

ECNEC held an up-to-date discussion on the proposal from the Ministry of Planning, Development and Special Initiatives entitled “Cash Development Loan to Jamshoro Power Company Limited (JPCL – GENCO -I) for 2 x 660 MW coal Fired power project “, and decided that the Energy Division will deal with the matter, in consultation with the Finance Division for the arrangement of a financing facility for the National Bank of Pakistan project / others commercial banks as an initial loading measure. This funding will then be reallocated under next year’s Public Sector Development Program.

Copyright Business Recorder, 2021

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