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Banks refuse to lend Rs50 billion to government

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ISLAMABAD: Commercial banks have refused to lend Rs50 billion to slice down circular debt saying the government is only interested in debt servicing but not inclined to pay the principal amounts, a senior official at Power Division.

“The denial by the banks has further deteriorated liquidity crisis in the power sector as the circular debt with loan and liabilities has ballooned to Rs1066 billion with just 85 percent recovery of the electricity bills,” he said.

In the last month of May of the government of Shahid Khaqan Abbasi, Dr Miftah Ismail, the then finance minister, was in the process of finalising the terms sheet with commercial banks for the release of Rs50 billions, but the scheduled banks have in a latest scenario brazenly denied to extend loan of Rs50 billion arguing they have already extended a credit of Rs128 billion in the calendar year and the government is not interested to pay the principal amount. They said the governing is paying only interest.

The official said that the government had invited 11 scheduled banks but 6 attended the meeting and had agreed to give Rs50 billion loan on Kibor+ 1, but now they have refused to extend loan.

“Now we have engaged Islamic banks for loan to ease out liquidity crisis in power sector that has been worsened on account of surge to circular debt up toRs1066 billion, but unfortunately, Meezan bank has also backed out but we are hoping the positive response from the Saudi Pak bank,” the official said.

Joint Secretary (Power) Zargham Eshaq Khan confirmed that commercial banks have refused to extend credit of Rs50 billion, but now the authorities of finance and power division are engaged with Islamic banks.

Coming to the circular debt issue, the official said that payables stand at Rs566 billion whereas loans and liabilities of the power sector stand at Rs500 billion and owing to the surge in payables, Pakistan State Oil has emerged the biggest victim of circular debt. Total receivables of PSO have increased to Rs331.5 billion. In the presence of this menace, the sustainability and smooth functioning of the power sector is feared to enter the danger zone.

More importantly, documents also unveil that to cope with this kind of inefficiency and overcome the gap of Rs85 billion loss in the head of theft alone, the overbilling of Rs1-1.5 billion per month is extended to the legitimate consumers every month. The documents also show that the recovery of electricity sold and billed to the end consumers has reduced to 85 percent which is why the power sector sustained the loss of Rs185 billion. “This means that more generation of electricity means more increase in circular debt,” said the official.

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