The News reported that Asian Development Bank has indicated that it might extend the credit line of USD 500 million to USD 1 billion to Pakistan to wriggle out Pakistan Electric Power Company from the circular debt in the energy sector.

A senior official at Ministry of Water and Power said that “We have approached World Bank and ADB for loan to erase by June 30th 2009 the remaining part of the circular debt which stands at over PKR 100 billion, as the incumbent regime had generated PKR 92 billion through Terms Finance Certificates.”

The official said that “Once the whole circular debt gets cleared the smooth functioning of the power sector will be ensured.”

He said that Pakistan is seeking the loan from ADB at LIBOR+150 to 200 basis points and in case Pakistan gets this loan, then some of the capital will be injected by the government to erase the whole circular debt.

The official said when asked as to why World Bank has not come forward to bail the country from circular debt which became the monster and inflicted the huge damage to smooth functioning in the energy sector that World Bank has shown its inability to provide loan to the regime saying it has no space to provide credit to the country for this particular issue. So now the regime is banking on the Asian Development Bank for the loan.

The Finance Ministry had opposed seeking the credit from WB and ADB, as it wanted to generate the required capital by hedging the assets of the entities involved in the circular debt with the banks under the concept of REIT.
(Sourced from the News)