Energy crisis: Sovereign credit rating on the line

Power companies send notices to the state-owned Central Power Purchasing Agency for clearance of Rs42b dues.

ISLAMABAD:

The government’s inability to pay its electricity bills on time may once again put the nation’s credit rating in jeopardy as the independent power producing company have threatened to invoke their sovereign guarantees if the state-owned Central Power Purchasing Agency fails to clear its dues.

Ten independent power producers (IPPs) have sent 30-day notices to the government demanding that the CPPA clear its dues with them, collectively worth Rs42 billion, said a senior official in the water and power ministry. The 10 IPPs have a combined power generation capacity of 2,100 megawatts. A spokesperson for the ministry confirmed this, stating that “IPPs have sent notices due to non-payment of dues.”

“If the government fails to clear its dues by the deadline, these IPPs will invoke their sovereign guarantees as a second step, which will put the credit rating of the entire country at risk,” said the official.

Among the ten companies that have sent notices are Nishat Chunian, Nishat Power, Liberty Power, Saba Power, Atlas Honda, Halmore Generation, Saphire Electric, Orient Power, and Rousch Power.

This is not the first time that the government has allowed matters to come to this point. In October last year, nine IPPs sent similar notices that were later withdrawn after the government committed to clearing its dues.

Curbing the power shortage

A power ministry official claimed that unannounced electricity outages have ended in most parts of the country, especially the major cities. Power generation in the national grid has hit 9,500 megawatts, which is about 27% less than the estimated demand of about 13,000 megawatts.

“It is expected that 400 megawatts will be added in the system shortly,” said the official, adding that 300 megawatts were added on Tuesday.

The power crisis in the country – which has led to riots in the industrial cities of Punjab – has forced Prime Minister Yousaf Raza Gilani to continue monitoring the situation while attending a nuclear security summit in Seoul, South Korea. Ministry officials claim that 1,200 megawatts were added to the grid over the past few days on the prime minister’s instructions.

A statement released by the prime minister’s office said that Gilani has called for a meeting of the energy committee of the cabinet to meet in Islamabad on Thursday to try to overcome the crisis.

No long term solutions

It appears, however, that the government does not have any long term solutions to the power crisis, which has been caused by a combination of inefficiency in the state-run segments of the power sector, an inability to collect bills, rising oil prices and the government’s inability to paper over all of these problems with subsidies.

As a result, the power sector has continued to add massive amounts of liabilities to the entire energy chain, a phenomenon that has come to be known as ‘circular debt’. The hardest hit company by the problem is the government-owned Pakistan State Oil, which is the largest oil marketing company in the country.

PSO has Rs173 billion in outstanding receivables from its clients, mainly from those in the power sector. Of those, the state-owned Wapda alone owed Rs48.5 billion, whereas the Hub Power Company owed Rs82.5 billion, and Kot Addu Power Company about Rs16.5 billion.

In turn, PSO owes about Rs155.6 billion to its suppliers, including Rs71 billion to international fuel suppliers. If it fails to pay on time, PSO may well find itself locked out of the international oil markets, which would render impossible the country’s continued imports of oil on which it coming to depend for an increasing proportion of its energy needs.

Published in The Express Tribune, March 28^th, 2012.