Circular debt: IPPs want government to pay Rs150b in bank loans

Banks reluctant to extend more loans to power sector.

Zafar Bhutta August 29, 2011


Independent Power Plants (IPPs) have asked the government to pay their bank loans amounting to Rs150 billion to avoid any further default on payments, sources said on Monday.

Banks are also reluctant to extend more loans to the power sector, as IPPs had already crossed their borrowing limits due to circular debt, officials told The Express Tribune.

They said that those IPPs whom the Pakistan Electric Power Company Limited (Pepco) owed Rs211 billion had now asked the government to own their Rs150 billion loans which they took to operate their plants.

Nine IPPs with 1,800-megawatt (MW) power generation capacity have already served notices on the government and the Central Power Purchasing Agency (CPPA) to revoke their sovereign guarantees due to a default on payments amounting to Rs31 billion in violation of contractual obligations, they said.

“Now the IPPs want the government to follow the same formula by owning bank loans amounting to Rs150 billion to clear some of their dues out of a total of Rs211 billion,” one source said, adding that the government had not responded to the proposal yet.

Independent Power Producers Advisory Council (IPPAC) Chairman Abdullah Yousuf confirmed that IPPAC had sent this proposal to the government. “We have proposed that the government should own Rs150 billion bank loans, which will help ease the financial woes of IPPs,” he said.

He said that banks were ready to implement the mechanism proposed by IPPs. “But they also want the government to first clear their interest amounting to Rs40 billion that was payable on Rs300 billion loans taken by power-holding companies,” he said.

Yousuf said that other IPPs were also expected to serve notices on the government after Eid if the current situation continued.

He said that the government had promised to provide 38 million cubic feet per day (MMCFD) gas to the four power plants with 900MW of power generation capacity.

He said that these power plants were getting
152 MMCFD gas before June 30.

He said that these plants were now running on diesel, adding that these IPPs required working capital which they did not have because of insufficient cash flow.

These plants have the efficiency of 51 per cent compared 16 to 35 per cent of power generation companies (GENCOs), he said. He warned that IPPs would shut down due to the financial crunch if the government didn’t act now.

The government has paid one trillion rupees during the last three years on account of subsidy and cost of inefficiency in the power sector.

At present, Pepco owes Rs280 billion to the power sector. Out of the total amount, it owes 29 IPPs Rs211 billion.

Published in The Express Tribune, August 30th,  2011.