ISLAMABAD  -   The government is all set to raise further debt worth Rs200 billion from Islamic banks to partially pay off dues of energy firms on account of circular debt as the ministry of finance has convened the meeting next week in this regard.

The finance secretary will chair a meeting on Pakistan Energy Sukuk-II amounting to Rs200 billion for power sector liquidity through Power Holding Private Limited on Monday (July 29). The government has scheduled to issue the second Pakistan Energy Sukuk (Islamic bond) of Rs200 billion to help the IPPs come out of the financial crisis. The Economic Coordination Committee (ECC) of the Cabinet on July 6 had constituted a committee under the chairmanship of Advisor to Prime Minister on Institutional Reforms & Austerity Dr Ishrat Hussain comprising secretaries of Finance Division and Power Division to review the Power Division’s proposal of Sukuk-II of Rs 200 billion meant to clear some part of circular debt.

The power sector’s circular debt is increasing due to various reasons like lesser than regulatory benchmarked performance (both loses and recovery), non-realisation of subsidies, delayed determinations of tariff for end consumer (court stays), and non-payment by provincial governments etc.

The incumbent government had worked on various options for eliminating circular debt after coming into power. The government had adopted the option of Islamic financing through Sukuk in January this year and an amount of Rs200 billion was raised from Islamic banks as fresh facility through Power Holding (Private) Limited by issuance of Sukuk (Sukuk-I) under government guarantee for payment of rental and purchase price at maturity.

This financing facility was at cheaper rates as compared to the late payment charges being made by the sector to various sectoral entities including the Independent Power Producers (IPPs).

It was also decided to issue another Sukuk in order to further reduce the payables. The government is now considering the option to issue further debt worth Rs200 billion from Islamic banks to partially pay off dues of energy firms on account of circular debt.

In the first phase, Meezan Bank was appointed as the Shariah Advisor of the Sukuk and structured the transaction to ensure its Shariah Compliance with the approval of its Shariah Board. A consortium of Islamic banks has been led by Meezan Bank Limited (MBL) which helped the government to structure the historic Sukuk. The other members of the consortium comprises Bank Islami Pakistan Limited (BIPL), Faysal Bank Limited (FBL), MCB Islamic Bank Limited (MIB), Dubai Islamic Bank Pakistan Limited (DIBPL), Al Baraka Bank Pakistan Limited (ABPL), United Bank Limited Ameen Islamic Banking (UBL) and National Bank of Pakistan Aitemaad Islamic Banking (NBP). MBL was also the largest investor in the Sukuk with a participation of Rs88 billion, while other banks which invested in the Sukuk includes FBL Rs35 billion, BIPL also Rs35 billion, DIBPL Rs14.15 billion, MIB Rs10 billion, ABPL Rs8.85 billion, UBL Ameen Rs5 billion and NBP Aitemaad Islamic Rs4 billion. The ministry was also planning to get the Sukuk listed on the Pakistan Stock Exchange (PSX) so a large number of investors could be eligible for investment in the instrument, which would help the Islamic capital market grow.