ISLAMABAD: The government on Wednesday decided to raise Rs41 billion from commercial banks to bail out the power sector without adding to fiscal deficit.

The decision was taken at a meeting of the Economic Coordination Committee (ECC) presided over by Finance Minister Ishaq Dar. The meeting also granted tax exemptions to German Development Agency (GIZ) and approved funds for purchase of printing machines for 2018 general elections.

The Ministry of Water and Power has been requesting the prime minister for almost a month for additional funds to meet payment obligations to independent power producers, fuel suppliers and cash flow requirements of the distribution and generation companies to rein in rising circular debt.

The circular debt liabilities were pitched at Rs401bn at the end of April by the power ministry. The issue remained at the centre of discussions at the level of Cabinet Committee on Energy (CCE) led by the prime minister for more than a month as the Ministry of Finance was opposed to funds out of the federal budget because of already breached budget deficit limits.

The finance ministry even continued to challenge the debt numbers and insisted the power sector should improve its own recoveries and losses.

The prime minister finally directed the ministers and secretaries of the ministries of finance, petroleum and power to reconcile payables and receivables and extend a helping hand to the power sector to maintain smooth power supplies particularly during Ramazan and till end of summer season.

A series of meetings over the last fortnight culminated in the finance ministry’s agreement to issue a government guarantee to raise loan from commercial banks. The amount would now be raised by the government and parked in the Power Holding Private Limited (PHPL) – a subsidiary of the power ministry – from where it would be passed on to consumers along with interest payments.

The ECC approved “provision of a government guarantee by the Ministry of Finance for repayment of loan as well as interest, for a syndicated term finance facility for the power sector amounting to Rs41bn,” said an official announcement. The amount will be utilised for the purposes of funding the repayment liabilities of the Distribution Companies (Discos), through arrangement between Power Holding Private Limited and discos.

The ECC approved the proposal of Cabinet Division for provision of bridge financing to the tune of Rs864 million to facilitate Printing Corporation of Pakistan in procuring new printing machines for meeting the requirement of the Election Commission of Pakistan, including with respect to General Elections 2018.

While considering a proposal of the Economic Affairs Division, the ECC approved exemption from the payment of General Sales Tax (GST) for GIZ in respect of goods purchased by it.

This exemption shall also be available on procurement of services by GIZ received in Islamabad Capital Territory. This decision has been made to support the development activities carried out by GIZ in Pakistan It was reported that GIZ had claimed about Rs210m worth of GST refunds for four years 2012-16 but had been paid only Rs3m so far. The tax exemptions were granted under a bilateral agreement of 1972 between Germany and Pakistan.

ECC also approved a proposal of the Ministry of Commerce for extending the deadline for export of sugar from May 31, 2017 till July 31, 2017. The ECC directed the relevant ministries to ensure price stability especially during the holy month of Ramazan.

The meeting also approved a proposal of Ministry of Industries and Production, finalised with consensus, for not deregulating the price of sugarcane.

The ECC also approved a request by the Ministry of Petroleum and Natural Resources that up to 10 mmcfd gas from Tolanj field may be allocated to M/s SNGPL. The price of gas will be as per the applicable Petroleum Policy. It also approved another proposal from the Ministry of Petroleum for allocation of 2.9 mmcfd gas from Khamiso-01 well, located in district Ghotki, to M/s Engro Fertilizer during the Extended Well Testing (EWT) period and post-approval of commerciality and development and production lease of the field.

On a proposal moved by the Privatisation Division, the ECC granted post-facto approval for payment of one month’s salary to the employees of Pakistan Steel Mills Corporation (PSMC) for the month of February 2017. As Ramazan was to begin in the last week of May 2017, Chairman ECC had previously accorded anticipatory approval in this regard.

Also, keeping in view the fact that Eidul Fitr will fall in the last week of June, the ECC also directed that the salary of PSMC employees for the month of March 2017 may be disbursed before the last week of June.

The meeting also approved a proposal from Finance Division regarding revised pay packages for the employees of PSDP funded projects.

Published in Dawn, June 8th, 2017