Sovereign default: IPPs to serve fresh notices to govt for outstanding dues

Govt has run into multiple defaults, yet to settle an approved partial payment.

LAHORE: Eight Independent Power Producers (IPPs) with a combined generation capacity of 1,700 megawatts (MW) of electricity are currently producing only 700MW; as the Ministry of Water and Power is sitting on Rs18 billion provided by the Ministry of Finance for a partial payment against a sovereign default of over Rs50 billion. The advisory council had, earlier this month, filed a case against the government for defaulting on payments, but delayed proceedings upon the latter’s request. The government had asked for time till the Economic Coordination Committee (ECC) meeting scheduled on May 15. 

The ECC had approved an immediate payment of Rs18.54 billion to the IPPs. It additionally issued guidelines to the National Electric Power Regulatory Authority for enhancing the pool of funds used to make payments to IPPs, in order that they may be able to purchase fuel and keep in operation. Lastly, it also recommended the addition of some clauses to the agreements signed with IPPs. Unfortunately, none of these decisions has been implemented so far, much to the annoyance of the IPPs’ Advisory Council.

“IPPs are currently not legally-bound to supply electricity to the government, as the government has defaulted on its sovereign guarantee and is still hesitant to clear dues,” IPPs’ Advisory Council Chairman Abdullah Yousaf has said.

“We are managing to operate IPPs from daily payments received from the government, but this practice has reduced generation capacity by up to 50%. If the situation persists, we will not be able to resume operations.”

“We will wait another week from now: if the government is able to clear dues, then it will be ok for us. Otherwise we, the eight IPPs, will serve another legal notice to the government,” Yousaf warned. “Although we held a couple of meetings with ministry officials, nothing has been done yet,” he said.

It has been learnt that the ECC had decided on plans to generate Rs82 billion for the power sector to clear dues of these eight IPPs and Pakistan State Oil. Sources in the Ministry of Water and Power reveal that the Rs18.54 billion approved in the ECC meeting can be released from the finance ministry without hassle, but some influentials are reluctant to release the amount for unknown reasons.

The IPPs face a dilemma on how to force the government to honour its sovereign guaranty. “We do not want to drag our government to international courts, as it would ruin the reputation of our country,” said an IPP manager. But he also reiterated that it was not possible for any IPP to go on producing power without receiving any payments. “We are defaulting on our lenders due to non-payments from the government. No scheduled bank is interested in financing us further for the purchase of fuel,” he complained.

He said the government first defaulted on a lump sum payment of Rs34 billion to the IPPs; then it defaulted on a further amount of Rs9 billion after all notices and formalities were completed. Notices for Rs3.5 billion in defaults by the government have also lapsed. Another further default amounting to Rs12.5 billion will be actualised on June 2.

The IP manager lamented that the government was taking these defaults lightly. He said the attitude has effectively barred foreign investors from committing their resources in Pakistan.

“How can they invest in a country where the largest defaulter is the Government of Pakistan itself?” he asked.

Published in The Express Tribune, May 31^st, 2012.