Circular debt discourages investment in power sector

Local, international investors no longer willing to risk money in new projects.

ISLAMABAD: The growing circular debt in the country’s energy sector is slowly choking investment, as local and international investors are increasingly reluctant to provide financing for new power projects.

Private and Power Infrastructure Board (PPIB) Managing Director NA Zuberi informed a parliamentary penal that met here on Thursday that the circular debt posed a major challenge for the PPIB, as no one was willing to invest in the country’s power sector. He said local as well as international investors were reluctant to stake their money in providing financial assistance to the sector.

“Timely payments must be made to Independent Power Producers (IPPs), if we are to attract investors to Pakistan,” he said. He added that coal may be a cheap source of power production, but internationally, financing for coal projects is very infrequent.

The Senate Standing Committee on Water and Power has recommended initiating hydel power projects, rather than focusing on thermal plants, for the production of cheaper electricity.

The body observed that PPIB had not initiated work on a single hydel power project for the last eighteen years, and had no concrete plans for the next two to three years in this regard. The panel noted the PPIB’s failure as ‘very unfortunate’.

The members committee noted that the country does not have sufficient fuel resources for power production, and reliance should, therefore, be increased on hydel resources. The chairman of the committee said that the nation was paying billion of rupees for electricity bills, but was deprived of electricity during the major part of the day.

Officials told the committee that the National Electric Power Regulatory Authority (Nepra) took a year to determine the tariff for private power producers, which delayed work on new projects. The committee recommended that the PPIB devise a mechanism to reduce the duration of financial closure of projects, and give suggestions for the removal of bottlenecks.

The panel directed Nepra to brief the committee regarding process of tariff determination during the next meeting, informing of the reasons causing delays in determination of tariffs.

Published in The Express Tribune, August 10^th, 2012.