ECC okays diversion of Rs10bn from Covid-19 relief package to power sector debt repayments

Updated May 21, 2020

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No rescheduling of commercial loans as it allowed signing of MoUs for about $2.04bn debt relief. — AFP/File
No rescheduling of commercial loans as it allowed signing of MoUs for about $2.04bn debt relief. — AFP/File

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday allowed talks on extension of debt repayment period of power plants — in both public and private sector — from the existing 10-year period to 20 years for about 65 paisa per unit cut in average capacity tariff and approved diversion of about Rs10 billion from Corona Relief Package to power sector interest payments.

The ECC meeting, presided by Adviser to PM on Finance & Revenue Dr Abdul Hafeez Shaikh also decided against rescheduling of foreign commercial debt as it allowed signing of memorandums of understanding for about $2.04bn debt relief with G-20 members.

The ECC also approved terms of reference for negotiations with independent power producers and generation companies to reduce capacity charges.

According to sources, the officials informed the ECC about loans taken by power producers that could be stretched from the existing 10 year period to 20 years and financing gaps that could be filled through issues of bonds under synthetic refinancing structure.

A group of businesspersons led by Mian Mansha had initially presented this proposal to the Ministry of Finance. The scheme would cover about 10,000MW of generation capacity involving projects with remaining debt-servicing period of 3-4 years.

No rescheduling of commercial loans

The scheme would be applicable on power projects with 10,000MW power generation capacity. The shortfall occurring every year for the period ending the original debt term will be funded by a series of bonds on behalf of the Power Holding Limited – a shell company of the Power Division.

The sources said that, at present, all power plants are frontloaded -- the entire debt is repayable in the first 10 years against 25-30 years of project life.

In case of extension in debt, the original debt term will remain unchanged but banks would purchase the debt through bonds for another 10-13 years at a premium and hence staggering the capacity repayment period.

The existing lender would get what it had contracted but it would stretch power purchaser’s liability. As such, the long-term basket price would be higher for consumers but initially they would get about 65 paisa per unit reduction in initial years.

The ECC allowed allocation of Rs10bn from Stimulus Package as a stopgap arrangement for interest payments to the Pakistan Energy Sukuk-II for a period of six months.

It also proposed amendments to the National Electric and Power Regulatory Authority Act on the recommendations of the committee led by Adviser to PM on Institutional Reforms and Austerity Dr Ishrat Hussain.

However, ultimately the consumers will have to pay this amount in the form of financing cost surcharge.

Subject to the cabinet’s approval, the ECC allowed the Economic Affairs Division to sign an MoU to avail the G-20 debt relief. Under the initiative, Pakistan is required to sign an MoU with all official bilateral creditors including the Paris Club creditors to implement the debt relief initiative of G-20.

ECC Chairman Dr Shaikh unequivocally informed the forum that Pakistan had no intention of seeking any kind of relief for repayment of its commercial loans or borrowings. He said the country has the means and will to honor its commercial commitments.

The ECC also approved the Revenue Division’s proposal to declare multi-modal transit hub Jia Bagga National Logistics Cell Transit Port as Customs Clearance port under Section 9 of the Customs Act 1969.

In order to manage and operate Prime Minister’s Covid-19 Pandemic Relief Fund 2020, the ECC approved the constitution of the Policy Committee led by the PM.

The committee includes: planning minister, adviser to PM on finance, adviser to PM on commerce, adviser to PM on poverty alleviation, PM’s focal person for corona philanthropy drive and finance secretary.

In order to devise a comprehensive policy to incentivise “Smartphone Manufacturing in Pakistan,” the ECC formed a committee under the chairmanship of the industries minister and members from the IT ministry, board of investment and engineering development board. The committee shall bring its proposals after consultations with all relevant stakeholders in due course.

Published in Dawn, May 21st, 2020