A senior government official told that an inter-ministerial meeting decided to release Rs30 billion immediately. — File Photo

ISLAMABAD: The government decided on Monday to pay Rs60 billion out of the public exchequer on behalf of power companies to avert a looming international default on fuel supplies as part of a set of measures to melt down about Rs300 billion inter-corporate circular debt.

Of this, about 80 per cent (Rs24 billion) will be provided to the Pakistan State Oil (PSO) this week to avert international default. Another Rs6 billion will be paid to independent power producers (IPPs) to enable them maintain their day-to-day business operations.

The meeting, which was also attended by senior officials of the ministries of petroleum, finance, water and power and railways, also decided to pay another Rs30 billion before the close of the last quarter of the current fiscal year.

The meeting also decided to make at source diversion of Rs10 billion every month from the monthly electricity bills of power companies to the Pakistan State Oil to ensure uninterrupted supplies of furnace oil for power generation. Normally, the PSO supplies about Rs21 billion worth of furnace oil to power companies every month.

The sources said the meeting formed a working group comprising additional secretaries of petroleum, water and power and finance to coordinate payment schedule for fuel suppliers and to work out a mechanism to complete eradication of about Rs300 billion worth of circular debt that has held the entire energy sector hostage.

The working group will meet twice every month and keep the finance minister posted about the debt payment schedule.

The decisions came in the aftermath of an emergency meeting Petroleum Secretary Imtiaz Qazi and PSO managing director Irfan Qureshi had with Prime Minister Yousuf Raza Gilani last week. The two officials alerted Mr Gilani about a looming default on international payments against fuel oil supplies.

The prime minister had been told that PSO's receivables had touched a record Rs159 billion, making it impossible to honour international commitments and maintain fuel supplies for the power sector.

The prime minister was requested to intervene for an upfront release of Rs70 billion to pay a part of international liabilities to foreign fuel suppliers and domestic refineries.

Mr Gilani had directed Finance Minister Hafeez Shaikh to convene an emergency meeting of relevant ministries to resolve the circular debt matter by June this year.

The prime minister is reported to have expressed his displeasure over increase in the circular debt despite his instructions in April last year to wipe it out in 45 days when it stood at about Rs116 billion, but had surged to more than Rs300 billion despite an injection of over Rs70 billion out of the federal budget since then.

Sources said the prime minister was concerned that a repeated increase in power tariff had not been helpful in reducing the circular debt despite putting an additional burden on consumers and earning a bad name for the government in the process.

Last week, the PSO had stopped fuel supplies to the public sector power companies and IPPs for non-payment of their dues, but was restored on instructions of the prime minister.