CCoP seeks alternative to circular debt financing ahead of D

Power and Finance divisions directed to devise a mechanism to prevent post-privatisation increase in government equity through loan repayments The Cabinet Committee on Privatisation (CCoP) has directed the Power Division and Finance Division to devise an alternative to the Circular Debt Financing (CDF) arrangement to prevent an increase in the Government of Pakistan's (GoP) equity through loan repayments after the privatisation of three power distribution companies (DISCOs), Business Recorder reported. The directions were issued while approving the transaction structure for Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO). Under the approved restructuring plan, retirement benefits of employees who have already retired will be carved out into a single GoP-owned Special Purpose Vehicle (SPV) for all three DISCOs. The companies will also enter into long-term lease-back arrangements for their land, with terms to be negotiated with pre-qualified bidders. Lease costs will continue to be recovered through tariffs. Verified receivables will be settled against payables, while future liquidity injections by the Finance Division will be adjusted against verified GoP receivables and payables to the Central Power Purchasing Agency-Guarantee (CPPA-G), in the sequence determined by the Power Division and the Power Planning and Monitoring Company (PPMC). Any surplus liquidity injected by the Finance Division will be treated as an advance subsidy payment. The overdue portion of Development Support Loan (DSL) re-lent loans, including accrued mark-up, will be written off, while the non-due portion will remain on the DISCOs' balance sheets, with mark-up recovered through tariffs. Reconciled receivables from associated undertakings, including WAPDA and GENCOs, will be settled against CPPA-G payables, while unverified receivables will be written off. Outstanding GST receivables from the Government of Punjab (GoPb), along with electricity duty payables to GoPb, will also be carved out into the GoP-owned SPV. The CCoP decided that GoP receivables not verified by the Power Division would be written off. IESCO-specific long-outstanding tax receivables from the Federal Board of Revenue (FBR) will also be written off, with IESCO required to withdraw related legal cases. Deposits for shares will be converted into share capital in accordance with the Companies Act, 2017. IESCO's payables to CPPA-G arising from possible delays in receiving subsidy payments for Azad Jammu and Kashmir (AJ&K) may be deferred for 15 to 20 years without interest. The Finance Division has prepared draft pre- and post-restructuring balance sheets for the three Batch-I DISCOs based on audited financial statements for the period ended March 31, 2026. For FESCO, total assets are projected to fall from Rs408.31 billion to Rs285.20 billion, while liabilities would decline from Rs320.39 billion to Rs222.30 billion. Equity would decrease from Rs87.92 billion to Rs62.87 billion. GEPCO's assets would fall from Rs335 billion to Rs212.79 billion, while liabilities would decline from Rs258.90 billion to Rs166.10 billion. Its equity would decrease from Rs76.10 billion to Rs46.69 billion. IESCO's assets would decline from Rs515.09 billion to Rs368.14 billion and liabilities from Rs426.50 billion to Rs257.39 billion. Its equity, however, would increase from Rs88.59 billion to Rs110.74 billion. According to the BR report, the three DISCOs have also been directed to increase their authorised share capital to Rs100 billion for FESCO, Rs75 billion for GEPCO and Rs125 billion for IESCO. The CCoP has directed that an alternative to the CDF arrangement be finalised in consultation with the Privatisation Commission. Until then, the DISCOs will not record CDF allocations on their balance sheets. The DISCOs have also been barred from taking any decision or action that could materially affect their financial or commercial position without prior approval from the Privatisation Commission.