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Resolving Rs 216 billion circular debt problem: government to set up \'Power Holding Company\'
 admin May 3, 2010, 06:20:21 AM 

ISLAMABAD (June 23 2009): The government is establishing a \'Power Holding Company Limited\' (PHCL), intended to resolve the Rs 216 billion circular debt of distribution companies (discos) and generation companies (gencos), official sources told Business Recorder. This is in line with the commitment made by the Minister of State for Finance and Economic Affairs Hina Rabbani Khar in her budget speech wherein she indicated that a holding company would "assume the entire loan liabilities of Rs 216 billion and pay the mark-up on these loans from budgetary resources". "The holding company will pick up all the debts of discos and gencos so that their balance sheets are cleared before June 30, 2009," sources added. On May 10, 2009, the International Monetary Fund (IMF) in a statement issued after deliberation over Pakistan\'s economic performance, indicated that a plan to deal with the circular debt (inter-corporate debt in the energy sector) was expected to be finalised soon, but did not give a deadline. However, official circles are of the view that the government has to shift the circular debt to the accounts of the proposed PHCL before facing the IMF staff mission in Dubai on June 28. Hectic activity was seen on Monday in the Pakistan Secretariat aimed at finalising the terms of reference (ToRs) of the \'company\'. Sources said that Finance Ministry has finalised arrangements with five or six banks for issuance of papers of about Rs 25 billion to be guaranteed by the GoP. "The government will retire these debts of Rs 216 billion within the next 10 to 15 years," sources added. A couple of months ago, Pakistan Electric Power Company (Pepco) had floated Term Finance Certificates (TFCs) of the value of Rs 92 billion, as claimed in the budget speech, to pay outstanding bills of fuel suppliers and independent power producers(IPPs). Key advantage of setting up of a \'holding company\' would be that cash transfers would not be involved, and only book adjustments would be made in the accounts. Sources said that te main beneficiary of the process would be the state-owned oil marketing company, Pakistan State Oil (PSO), as PSO had recently lodged an SOS complaint to the government that the company feared its LCs might default due to liquidity problems. PSO recently conveyed to power generation companies that the current financial crunch has forced it not to go for tendering of low sulphur furnace oil (LSFO) any more. According to latest reports, the company\'s huge amount of Rs 80 billion remains unpaid by the financially ill power generation companies. PSO has been maintaining uninterrupted supply of LSFO to Kot Adu Power Company (Kapco) for the past several months. It was only after a series of correspondence and exchange of discussions that an amount of Rs 14 billion was transferred to PSO directly in March 2009 for adjustment against Kapco outstanding dues of Rs 25 billion. Since then, no payment has been received and, with the continuity of supplies, the outstanding have again accumulated to over Rs 20 billion (inclusive of the LSFO-HSFO price differential amount). Consequent upon non-receipt of payment from Kapco, PSO is unable to make payment to Attock Refinery (ARL) as a result of which supply of local LSFO has been drastically reduced. At present, the major portion of LSFO supplies comprises of imported grade. Nonetheless, PSO, which is having serious cash flow problems due to non-payment by major fuel customers of the power sector, totalling Rs 80 billion, inclusive of Kapco, is not able to procure its product through imports. The government has earmarked Rs 30 billion in the 2009-10 budget to pay interest on TFCs.

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