AKD Quotidian about — All eyes on circular debt

Karachi, May 30, 2013 (PPI-OT): Although a formal strategy for tackling the energy crisis has not been announced, statements by the incoming government to bridge the power gap have gripped both media and market attention of late.

According to AKD Securities in this regard, an issue of –PkR 500bn worth of T-biIIs to retire the circular debt has been proposed as part of the interim strategy. Subject to banking sector liquidity, AKD Securities expects immediate payments to energy sector players to ease current liquidity concerns.

However, this only effectively kicks the can down the road where AKD Securities believes the GoP will have to implement medium and long term measures pertaining to subsidy elimination, a better generation mix and a reduction in T and D losses, among others. In this regard, while the Power and OMC sectors have been flagged by the market as the major beneficiaries of any such reforms, an improvement in power supply implies positives for the manufacturing sector which could drive gains in sectors such as Textiles, Cements and Autos.

Short-term measures: Given the sizeable stock of circular debt, the GoP is focusing on providing a cash infusion of -PkR500bn through T-bilIs in the immediate term. Subject to banking sector liquidity, this should provide relief to the energy chain across the next 3-6 months.

During this period, the incoming government has reportedly indicated it will target a 30% reduction in outages. Near-term steps in this regard may reportedly include: Instituting a mechanism to recover power dues worth PkR110 bn from provinces

Preference of fuel supply to larger IPPs (e.g. HUBC and KAPCO)

Conservation through use of LED bulbs, solar and biogas sources

Possible suspension of supply of 650MW to KESC and add to national grid

Placing a ban on CNG stations

A possible procurement of oil on deferred payments.

Potential exploration of the int’l bond market

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