Circular Debt Rs 1022 Billion. Rs150-200b needed for smooth power supply in summer

[SunilM]

Rs150-200b needed for smooth power supply in summer

ISLAMABAD: Purging the power sector from liquidity crisis and ensuring availability of electricity from three RLNG-based power plants, Tarbela-IV and Neelum-Jhelum project is only key left to the power division to end loadshedding during the forthcoming peak summer season under the caretaker government.

And if the issue of circular debt is not addressed to optimum level and electricity availability is not ensured from any of the said plants, loadshedding will continue to haunt, Federal Secretary of Power Division Yousaf Naseem Khokhar told The News here on Thursday in an exclusive talk.

The country’s power sector badly needs Rs150-200 billion to bring down the circular debt to Rs325 billion to run itself smoothly in next 4-5 months till the next elected government takes the charge and in case finance ministry fails to provide the amount to the power division, then the loadshedding will continue to haunt masses during caretaker regime.

“And more importantly the annual haemorrhage of the power sector has surged up to Rs1.002 trillion (Rs1022 billion) and the only solution to this mega problem is the privatisation of all DISCOs (power distribution companies). It requires the political will and to this effect the ball is to be in the court of the next elected government,” he added

After unbundling of Wapda into transmission and distribution companies, the reforms process got halted, knowing the fact it will not yield dividends unless and until the unbundled DISCOs are privatised and their differential tariff regime based on the performances of DISCOs is implemented. The mammoth hemorrhage of Rs1022 billion can be resolved if the government shows the political will and off load all the DISCOs to the private sector.

Coming to the current situation of liquidity crisis, Khokhar said that so far, PHPL (Power Holding private Limited) on the direction of finance ministry has borrowed Rs80 billion to off load the liabilities of PSO and IPPs, but factually Rs53 billion were made available to pay IPPs, nuclear power plants and PSO as Rs27 billion has been used for debt servicing for the loans attainted by PHPL. The Rs53 billion released by finance ministry is just a peanut towards the solution of huge problem of circular debt.

Earlier, the volume of loans borrowed by PHPL stood at Rs434 billion and with the latest borrowing of Rs80 billion, the loans in toto have surged up to Rs510 billion. The government, IMF and World Bank are in agreement that power sector can perform well if the circular debt is contained to Rs325 billion. And in case the circular debt surpasses the figure of Rs325 billion, then the liquidity crisis starts worsening. Khokhar said that in February 2018, the circular debt has risen to Rs534 billion, which is still at higher side even after the payment of Rs53 billion to IPPs and PSO. He said that earlier the power division wanted to have pre-audit done (prior to payments to IPPs), but now the Audit General (AG) has allowed us to first pay the amount then it would conduct post audit and to this effect the AG has allowed us to pay first some of the arrears of IPPs.

“We still need the amount up to Rs150 billion to ensure the comfort level and if it is paid up to Rs200 billion, then the power division will be in a position to run the power sector smoothly in next 4-5 months till the takeover by the next elected government.” He said that the finance ministry needs to pay the huge amount in the head of subsidy being extended to AJK, export oriented industry of Pakistan and agriculture tube-wells particularly in Baluchistan. Khokhar said that based on assumption, the power division submitted the two scenarios to the higher leadership of the country, saying that under secanrio-1 if all the plants are available for power generation and the three RLNG power plants of 3,600MW, Tarbela-IV of 1,410 MW and Neelum-Jhelum of 969MW are operational then there will be almost no loadshedding and under scenario-II, if half of the plants are available then the loadshedding will continue to hit the masses.

The Cabinet Committee on Energy headed by Prime Minister, however, has ordered the power division to make all available plants operational for power generation during peak summer season and the holy month of Ramazan and to this effect, we have forwarded the summary for import of furnace oil and to make the RFO based power plants available for electricity generation.

“We have been told that Haveli Bahadur Shah RLNG-based power plant is to come on stream by April 15, 2018 and Balloki plant will commission by May 31 or June 1 and Bhikki power plant is still delayed on account of vibration and calibration issue.

However, the power division has, under two key performance indicators (KPIs), decided not to expose the masses to forced loadshedding and to this effect, a contingent plan has been worked out with DISCOs. However, KPK’s most of the areas will continue to face the power outages of 8-10 hours in the wake of construction of Peshawar Metro Bus route and high losses feeders. And the end consumers will be informed through SMSs about the loadshedding on account of technical reasons and scheduled power outages so that they could not panic.

The DISCOs’ officials are being trained to sensitize the masses about the load management, through SMSs with the end consumers and keeping themselves in contact with local community leaders and elected representatives. This will help people not create the mess in the area as they will be knowing the reasons of the power outages in their respective areas.

Khokhar said that we have started the coordinated efforts starting from Met office with its day-to-day weather predictions up to the electricity consumption patterns of the end consumers to meet the demand side. During his meeting with chief executive officers of DISCOs, he said, an interesting observation surfaced, unfolding the fact that in some areas, electricity demand has increased by the industrial sector as the RLNG being consumed by them (industrial consumers) has become costly and they have started using the electricity from the national grid.

https://www.thenews.com.pk/print/301164-rs150-200b-needed-for-smooth-power-supply-in-summer

 

[Skull and Bones]

More debt then?

American way of managing credit cards, they get a new one to pay off the previous one. Pakistan is doing it on a national scale

 

[SunilM]

Well, The summers are only starting and losses will increase in the next 4-5 months. The best part is they will get loans from some where and survive. I must admit, they know how to survive and find some one ready to give loans/fund them. Maybe a nuke power is too big to be allowed to fail?

 

[Zulfiqar]

There are a few things that need to be clarified which I would like to as I know about the financing structure for PHPL.

There are two components to this total debt.

• Debt owed to power producers/fuel suppliers e.t.c
• Debt owed to financial institutions via PHPL e.t.c which is backed by Govt. Guarantee.

PHPL is an entity created to get loans from banks and service the debts of the producers/fuel suppliers.The short term liabilities above of above entities are converted to long term loans for easy payment/servicing.

While the outside world see the Total debt amount and get alarmed. The Banks are not that alarmed and they don't have to. Here is the reason why.

The banks invest in two main categories of assets (Loans and debt/equity securities) apart from few others.

The investment in debt securities are mostly in form of govt. T- Bills and PIBs e.t.c.

What the above banks have done is that they have reduced their exposure somewhat in govt debt securities and instead increased their exposure in debt by lending to PHPL. Their overall exposure to govt. backed debt does not change much (apart from incremental year over year change as the asset books of banks increase).

Some banks may increase the exposure to govt guaranteed debt (by way of lending to entities like PHPL) apart from investing in T Bills/PIBs. However, the banks are quite happy while doing that as risk wise their asset book is healthier than an asset book with sizable retail sector exposure which has a higher probability of default.

Overall the banking sector is happily lending to Govt. via this strategy as they earn a decent spread and they are not panicking.

What needs to be done is to somehow reduce/settle the first component of the total debt so that our short term liabilities are reduced. The long term liabilities will gradually reduce later on and the banks will then happily invest in T-bills/PIBs as they don't have a tendency to promote lending to small businesses (which is unfortunate).

 

[Pakistani Aircraft]

India's end-December external debt at $513.4 bln - govt

Reuters Staff

MUMBAI, March 28 (Reuters) - India’s end-December external debt was $513.4 billion, up 3.6 percent from end-September, the finance ministry said in a statement on Wednesday.

On a residual maturity basis, short-term debt constituted 42.4 percent of total external debt at the end of December, slightly up from end-September’s 41.7 percent, the statement showed. (Reporting by Suvashree Dey Choudhury; Editing by Amrutha Gayathri)

Reuters
@SunilM, @Skull and Bones

 

[El Sidd]

Yawn

 

[ziaulislam]

India's end-December external debt at $513.4 bln - govt

Reuters Staff

MUMBAI, March 28 (Reuters) - India’s end-December external debt was $513.4 billion, up 3.6 percent from end-September, the finance ministry said in a statement on Wednesday.

On a residual maturity basis, short-term debt constituted 42.4 percent of total external debt at the end of December, slightly up from end-September’s 41.7 percent, the statement showed. (Reporting by Suvashree Dey Choudhury; Editing by Amrutha Gayathri)

Reuters
@SunilM, @Skull and Bones

you are wasting your time..they dont listen to facts or statistics..
i dont see how is 1000 billion rupees debt accumulated over 10 years or 100 billion per year any threat to our economy when taxation is over 4000 billion...

only crisis we have is short term current account crisis (NOT A LOAN /DEBT CRISIS) due to poor management of external factor, this can either be managed via short term IMF loan or foreign bonds either one should work..

with respect to power sector its poor foresight when it comes to coal vs LNG and power insight with respect to NEPRA sticking to 10% line loss formula

 

[SunilM]

And sticking with the Subject at hand....

Dealing with circular debt

The circular debt is back with full swing. There is no single number to count on; but signs are there to demonstrate that the menace is soon going to reach at a level which may warrant a settlement like what was cleared in 2013.

Last week, the power holding company silently issued a TFC to a few banks to raise around Rs50-60 billion, and it is no brainier to assume the objective is to clear over dues in energy (mainly power) chain. The over dues of companies are reaching at alarming level.

The red flag was raised in July 2017 (for details read “inevitable circular debt?” published Jun 2, 2017). The trade debts of 7 listed IPPs (HUBCO, KAPCO, KOHE, NPL, NCPL, LPL and PKGP) were around Rs206 billion in Mar13 which were reduced to mere Rs74 billion in Jun13 after the clearance of Rs161 billion in cash on June 28, 2013. The number picked up fast to reach Rs176 billion by Jun14, in just one year.

Then low oil prices did not let circular debt to reach too high for couple of years. But now, the windfall is over, and it is back with full steam. In terms of listed companies’ dues, there is a way to gauge the intensity of the problem i.e. by looking at the months of receivables in terms of months of revenues.
The trade debt of listed IPPs was 7.7 months of revenues in Mar13 which came down to 2.9 months in Jun13 after the onetime cash release by Dar. It started moving north since then and in Dec 17 it reached at alarming level of 12.3 months.

That is an astonishing number. The usual receivables are 1-2 months and these are not termed as overdue. However, any number more than that affects cash flows of companies. Now the debt is due for more than a year, and that is simply not sustainable.

Hence, the TFCs issue of power holding company was the need of time and it may provide some temporary relief. But the problem is of much bigger magnitude. There are many other companies operating in the power sector chain than the 9 listed IPPs.

A recent news item suggested that Sahiwal Coal Power Plant may close operating due to unsettled dues. The overdue amount of the plant has reached Rs20 billion within nine months of its operation. There are other unlisted IPPs as well which may be facing similar problems and the issue of renewable energy sources is no different.

The summer of 2018 has come earlier and the holy month of Ramadan is not far away. The power sector demand will be high In May and in the absence of clearing over dues, heavy load shedding is inevitable.

The irony of the matter is that power capacity is well in surplus, but distribution and transmission losses are impairing power generation companies to generate adequate power. The recent money raised by power holding company does not come directly in fiscal account, as it is a quasi fiscal public sector entity debt.

With the IMF programme likely coming up, the fund won’t allow such direct fiscal borrowing for clearing power dues. Thus, government may clear as much circular debt through direct or indirect fiscal sources by May end; as once the IMF is in, the power tariffs have to be revised up considerably to account for high losses (Read: Circular debt clearance 2.0, published on April 2, 2018).

And once the tariffs are up, the demand which is function of price would go down to make part of additional capacities idle while the capacity charges ought to be paid. This may result in a vicious cycle of overdue payments, tariffs revision and cut in power generation.

https://www.brecorder.com/2018/04/06/409850/dealing-with-circular-debt/