Give-and-take arrangement: Govt to give conditional blank cheque to energy sector

It is very unlikely that any IPP will agree to reduce its mark-up on late payments from government, says an analyst.

KARACHI:

As for the finance minister’s recent announcement about renegotiation of terms of agreements between the government and independent power producers (IPPs), Elixir Securities’ Naseem said it was unlikely that the IPPs will accept the proposal of reducing charges on late payments from Karachi inter-bank offer rate (Kibor) plus 4% or 4.5% to Kibor plus 2%.

“Although the government can make such request, the final decision rests with IPPs anyway. I don’t think any IPP will agree to reduce its mark-up on late payments from the government. But the scenario will change in case the government agrees to reconsider some of the policy-related demands of IPPs,” Naseem said.

Arif Habib Limited’s Imran shares the view of Naseem with regard to the possibility of a renegotiation of terms involving a 2% reduction of mark-up in the case of late payment from the government.

“Such a drastic cut in the mark-up rate will affect the entire project’s feasibility. I consider it highly unlikely,” Imran said, adding however that the contracts with upcoming IPPs may include such a condition.

Reporting by Kazim Alam

Published in The Express Tribune, June 17^th, 2013.

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