Plan prepared for cut in circular debt.

ISLAMABAD -- The Ministry of Energy has proposed to the Special Investment Facilitation Council (SIFC) a plan for reduction in power-sector circular debt of Rs2.3 trillion through a combination of budget subsidies, revision of policies and agreements.

The draft plan has been shared with a committee of the civil-military forum, which will be further fine-tuned in consultation with the Ministry of Finance, according to government sources. A follow-up meeting has also been held recently between the finance and energy ministries.

But interim Finance Minister Dr Shamshad Akhtar has refused any further 'fiscalisation' of power-sector losses through budget subsidies.

Over the years, the energy ministry has availed subsidies of trillions of rupees to keep afloat the power sector that is bleeding due to high losses, low recoveries, unbudgeted subsidies and faulty agreements.

The circular debt stood at Rs2.31 trillion as of June this year, which includes commercial banks' debt of Rs765 billion parked in the government holding company.

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For the current fiscal year, the Ministry of Finance has set aside Rs976 billion in subsidies to maintain the debt at the current level of Rs2.31 trillion in line with an agreement with the International Monetary Fund (IMF).

The executive committee of SIFC had reviewed the initial plan and instructed the energy ministry to evaluate the options in light of 'IMF conditions'. The final plan is expected to be shared with the executive committee in the next meeting, subject to endorsement of the finance ministry.

The initial draft suggested that the energy ministry proposed to make the entire commercial banks' debt of Rs765 billion part of the public debt. The PTI government had also decided to make the debt of Rs565 billion part of the public debt, which would be retired on maturity. Over the past three years, about Rs250 billion has been settled on maturity of the loans.

However, the Rs200 billion raised through Islamic bonds in 2020 is not part of the debt. Sources said that the energy ministry proposed to make that loan part of the public debt but the Ministry of Finance was not receptive to it.

The revised Circular Debt Management Plan was already under implementation and the Ministry of Finance was making timely payments to keep the circular debt within agreed limits, said Qamar Abbasi, a spokesman for the Ministry of Finance.

The spokesman said that any additional financial...