ISLAMABAD: The Cabinet’s Economic Coordination Committee (ECC) on Friday approved the unbundling of past debts and receivables of K-Electric (KE) to be settled by arbitration and its future additional power supplies from the national grid under a new mechanism of payment.
The meeting chaired by Finance Minister Shaukat Tarin also approved a refinancing facility and credit guarantee worth Rs 60 billion for small and medium enterprises (SMEs) and released around Rs 19.43 billion. of 11 additional grants.
Informed sources told Dawn that the two sides had come to an agreement on the appointment of former Chief Justice of Pakistan Tassaduq Hussain Jilani as arbitrator on the settlement of government entities and KE’s claims. one against the other without the binding and direct terms of reference (TOR). “Equity and justice”.
These sources said KE insisted on including “fairness and justice” in the arbitration mandate on the advice of a lawyer who is now a senator from the Treasury. However, the division of power and the division of finance had opposed such a constraint since the principle of “equity and justice” was already covered in the arbitration act.
The finance and power divisions had been informed that the term “ fairness and equity ” in the mandate had a different connotation and offered an escape from bilateral commercial contracts between public sector entities and KE and therefore a liability. additional of about Rs 175 billion to the public sector. .
The general feeling of the participants in the JCE meeting was that such a precondition for arbitration should be rejected at the outset and that the sole arbitrator – a former chief judge – should be free to make an award on the basis of the country’s laws and contracts.
Going forward, the government has committed to also signing a separate agreement for the payment of a market-based mark-up on deferred subsidy payments by the Ministry of Finance. KE would provide standby letters of credit (SBLC)
backed by an escrow account to ensure that the Central Power Purchase Agency automatically receives monthly bill payments for power from the KE.
It was agreed that liquidity would remain the main challenge for SBLC or subsidy payment and therefore a solution was needed or KE would have to borrow from banks. KE also wanted a government guarantee for the timely payment of grants. At current tariffs, the monthly electricity bill to be paid by KE is estimated at around Rs 13 billion compared to Rs 8-9 billion of monthly differential subsidy. Further meetings would be needed to work on an agreement.
The government has agreed to enter into a new Power Purchase Agreement (PPA) to supply approximately 2,050 MW of electricity to Karachi from the national grid.
An official statement said the ECC had received a presentation on the issuance of a national security certificate to KE and the company’s unpaid debts and collectable issues. Federal planning and energy ministers briefed the CCE on the principles agreed between the government and KE to resolve most of their long-standing issues regarding supplemental supply and payment procedures at the last meeting.
The ECC ordered the authorities concerned to expedite the signing of a new PPA for a smooth payment mechanism and uninterrupted power supply to Karachi and approved the “settlement of issues related to transactions through arbitration”.
The Minister of Energy informed the committee that a new PPA would be signed soon with KE.
The ECC also approved a three-year Rs 60 billion refinancing program for SMEs as part of a refinancing and credit guarantee scheme for unsecured loans. The program involves a risk-sharing grant from the government.
The finance minister told the ECC that there are about 5.2 million economic establishments in Pakistan, the largest proportion of which are SMEs and the sector accounts for 40 percent of GDP and 25 percent of exports.
However, according to the Minister, access to finance, among other limitations, remains a challenge for SMEs in realizing their potential.
This is in part due to higher loan losses, higher intermediation costs, a lack of appropriate lending technology for retail lending, acute information asymmetry, a lack of collateral and the desire for creditors. SMEs to operate in the informal sector. Banks are therefore reluctant to lend to SMEs.
The program plans to partner with selected banks to enable them to offer unsecured financing to SMEs. Under this program, the State Bank of Pakistan will provide refinancing of approximately Rs 60 billion over three years at a mark-up rate of 1%, which will be used by partner banks to extend financing to SMEs in a mark-up of 9%, thus providing a spread of 8%. mark-up for banks. This will encourage banks to justify their initial investment in systems and people.
The maximum loan amount under the program will be Rs 10 million. The scheme provides for risk coverage of up to 60% by the government to banks on their financing to SMEs. The total financial impact of the proposed government risk sharing facility has been calculated to be approximately Rs 26 billion to be provided to the SBP for subsequent payments to banks over four years – Rs 1.19 billion in FY2021-22, 6.24 billion rupees in FY2022-23, Rs11bn in FY2023-24 and Rs7.4bn in FY2024-25.
The ECC also approved a summary presented by the Ministry of Commerce on the tolerance for delay of late shipment of vehicles imported by Pakistanis from overseas subject to compliance with all other import conditions.
The meeting discussed the allocation of funds for the launch of the second phase of the Ehsaas Emergency Cash program and recommended that the program be assessed whether the new National Socio-Economic Register (NESR) survey targeted sectors that had been affected by smart and micro locks. during the Covid-19 pandemic, then an updated proposal be presented to the committee.
The underlying rationale is to provide targeted grants to support the most vulnerable segments of society during the third wave of the pandemic.
It has been proposed to increase the number of regular beneficiaries of Ehsaas Kafalat and to add additional beneficiaries (after identification through the ongoing NSER) to alleviate the economic hardship related to the Covid-19 pandemic during the second phase.
The ECC has approved the allocation of 3 mmfcd of gas from the NF Hor-1 (RE) well to M / S PPL, for two years, for sale to any third party selected under a call for tenders at a price agreed and negotiated by mutual agreement.
The meeting also assessed a Board of Investment (BOI) summary regarding the minimum turnover tax exemption under the Special Economic Zones Act 2012 to facilitate both developers of the ZES and its companies. After discussion, the committee tasked the Law Division, the Federal Board of Revenue and the BOI to confirm the proposals through mutual consultations regarding the implementation of the minimum turnover tax exemption and to present the proposals to the next CCE meeting for approval.
Posted in Dawn on May 22, 2021