326b rupees of the Rs503 billion owed on account of circular debt will be cleared by June 30. The remaining amount will be paid by August 10. ILLUSTRATION: JAMAL KHURSHID
The country’s highest economic decision-making body on Thursday approved the settlement of the Rs503 billion circular debt within the next 45 days, but linked payments to independent power producers (IPP) with the signing of initial pacts for converting their power plants to coal.
Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the Cabinet approved the mechanism for making payments worth Rs280 billion to IPPs before June 30. However, the IPPs will have to sign a memorandum of understanding (MoU) with the National Transmission and Dispatch Company (NTDC) to convert their over 2,000MW thermal power plants to coal, according to an official handout.
The handout states, meanwhile, that of Rs503 billion owed on account of circular debt, Rs326 billion will be cleared by June 30 and the remaining amount would be paid by August 10.
With ECC’s nod, the government has taken the first concrete step towards the resolution of the crippling energy crisis. The payments will ease the power sector’s liquidity problems and help add over 1,000MW to the national grid before the start of Ramazan.
The cabinet’s body also allowed renegotiating some of the terms of the Power Purchase Agreements, signed with IPPs. The IPPs have been asked for optimal utilisation of their capacity. They have also been asked to extend their payment-limit from one month to two months to provide more time to clear their bills. The ECC has also directed government departments concerned to reach out of court settlements with IPPs on disputed matters.
According to the ECC’s decision, the government will make cash payments to IPPs so that the latter can clear their loans with banks. IPPs also owe money to oil marketing companies. To clear this part of the circular debt, the government will issue Pakistan Investment Bonds.
ECC, meanwhile, did not approve the summary of 425MW Nandipur Power Plant. The committee had been requested to approve the provision of Rs23.5 billion in sovereign guarantees and waive off demurrage charges. ECC directed the Ministry of Water and Power to prepare a revised PC-I for the project and add all additional costs to the original cost.
The committee also scrapped earlier tenders for the procurement of liquefied natural gas (LNG) and asked the Ministry of Petroleum and Natural Resources to bring a fresh proposal in the next meeting. It observed that the last government issued these tenders in haste and the Supreme Court had taken suo motu notice of the lapses. The PPP government tried to award a $45 billion deal to the second highest bidder by ignoring the lowest bidder.
The ECC also approved the Ramazan package, giving a Rs2 billion subsidy on essential food items.
Published in The Express Tribune, June 28th, 2013.
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This looks like IPPs made hostage now by a Government instead of bandits. Its so funny. We claim to be Muslims but use arm twisting methods to get what a powerful wants. How come foreign investment can come to pakistan where rule of law is POWER IS MIGHT.
@just_someone: The PMLN will Inshallah achieve its objectives of making payment to the IPPs, getting the PPA agreements revised, increasing the output by 2000 megawatt, and conversion from furnace oil to coal fired IPPS. This is long overdue and personalized motives in governance must be put aside as in the case of the PPP. The PMLN Nawaz has won the elections with a 'clear perception and a clean instinct. Salams
Signing MoUs with IPP will not legally bound to convert from fuel to Coal. further no guarantee is being taken from IPPs to ensure full or at their optimal capacity utilization at least. it is only the the payment that will be carried out. Not a solid step to reduce energy crises. issue is to meet the energy demand by increase in supply. Every Govt is master in blind folding the public.
Though the price per unit on coal generation would be significantly lower and of benefit to the Country, the Government cannot just based on this cause enforce the IPPs to sign the MOU for conversion of their respective projects from HSD/RFO/Gas to Coal. Reason being the various agreements which the Government has signed with these IPPs prior to their establishment. These provide solid protection to the IPP investors, their investments and the future return from their investments in these projects. How they threaten the IPPs for their payments for which the Government is liable through a binding legal contract. The IPPs, if finding themselves cornered from this deal, have the option to move notice of termination under their respective Implementation Agreements and seek compensation amounts from the Government which would run into billions.
One sided agreement against people who invested in Pakistan. SC should declare the agreement illegal to prevent abuse of power by governments.
Although environmentally bad, this is the best thing to do for Pakistan in the short run while other eco friendly projects are developed.
A smart plan by the Government if it achieves fruition!