The IPPs will be paid before June 30, as part of efforts to mop up a Rs503 billion circular debt in two phases over as many months. PHOTO: FILE
As the government looks set to clear over Rs285 billion in outstanding dues of Independent Power Producers (IPPs) this week, a meeting of the country’s top economic decision making body has been called to find a way to settle some thorny issues in the matter.
The maiden meeting of the new Economic Coordination of the Cabinet (ECC) will be held before the end of this week. It will review the possibility of renegotiating a few terms of the Power Purchase Agreements (PPAs) with IPPs and approve a structure for the settlement payments, sources said.
The Ministry of Finance has worked out dues of over Rs290 billion, which are to be paid out to 28 IPPs. The IPPs will be paid before June 30, as part of efforts to mop up a Rs503 billion circular debt in two phases over as many months, officials working on the transaction told The Express Tribune. All dues up to the end of May will be cleared, they added.
The amount is exclusive of Rs25 billion owed by the IPPs to the federal government on account of penalties on running plants below agreed-to capacity. The government wants to adjust this sum in the outstanding dues.
Minister for Finance Ishaq Dar has already vowed to clear the IPPs’ dues: an amount of Rs326 billion has been budgeted for this purpose, which will have to be paid before the end of this month, or else it will lapse due to the close of the fiscal year.
Although the structure of the transaction has not yet been finalised, officials said the possibility was that the IPPs will receive cash directly into their accounts. These payments will enable the IPPs to clear their loans and add 1,700 megawatts (MW) to 2,000MW to the national grid, helping reduce load-shedding in Ramadan, the officials added.
At post-budget press conference, Finance Minister Ishaq Dar had announced that he would convince the IPPs to renegotiate the terms of their agreements – an area where he was facing problems since the IPPs had their own arguments, officials added.
“We have achieved what we wanted to achieve, but in a different manner,” Dar said while talking to The Express Tribune. He was responding to a question asking whether the IPPs were unwilling to renegotiate the PPAs. Dar said the ECC meeting will be held within this week and will take a final decision on the issue.
Dar had wanted IPPs to reduce late payment surcharges from the current rate of Karachi Interbank Offering Rate (KIBOR) plus 4% to KIBOR plus 2%, an envisaged relief of 200 basis points. He had also vowed to seek the credit limit period to be extended from one month to two months.
According to officials, there has still been little progress on these issues, as IPPs have sought additional payments for extending the credit period and have refused to lower late payment surcharges.
“There is no profit element in late payments. If the rates are reduced from KIBOR plus 4%, the IPPs will be wiped out,” an IPP official told The Express Tribune while speaking on condition of anonymity. He said the IPPs make fuel supply payments in advance by borrowing from banks, while power purchases clear their dues much later.
The IPPs insisted that the government pay a price for requesting an extension to the payment period, the officials added. Moreover, amending the PPAs would require consultations with the Private Power Infrastructure Board and the National Electric Power Regulatory Authority, the officials pointed out.
While talking to The Express Tribune, Dr Musadik Malik, special assistant to the prime minister, said that there was a need to sit down and renegotiate the terms of the agreements with the IPPs in the best interests of the nation. He said the exercise should be conducted without blackmail from either end.
Dr Malik, who enjoys the status of a minster of state, said the direction of the talks should be that policies should be investor-friendly, but must also protect the interests of the country – unlike the past, he said, when public interest was compromised.
Published in The Express Tribune, June 25th, 2013.
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The best solution is to Get rid of these Independent Power Producers. They use Imported Oil, which is costing Billions of Dollars of worth in Foreign Exchange Depletion. Instead the Gov't should have allocated the Rs. 500 Billion into Other sources of energy which can be set up more quickly. The Chinese company is setting up a 50 MW Wind Power Plant for 120 Million US Dollars. Rs. 500 Billion equals 5 Billion US dollars, which gov't is paying to these IPPs. If that 500 Billion is allocated to Wind Power Alone, it can produce 2,500 MW, and Wind Power is the Easiest and Fastest Way to set up Power plants. The longer it takes to resolve this energy crisis the more it will cost everyone in the whole country, in terms of lost productivity, 100s of billions of Rupees. We need Smart, Intelligent people at the helm to resolve this Energy Crisis, which requires smart solutions, and Wind Energy along with Solar, is the Fast and most efficient way to do it.
Couple observations 1) despite the articles title you haven't paid the debt yet and 2) negotiating a 50% reduction in the late payment penalty appears to be inappropriate and possibly extortion. You agree to late payment penalties when you purchase the product - you don't take the product, stop paying and then make elimination/reduction of penalty a condition of paying.
@Obvious: If there is no nexus between Economics and Accountancy, then let us do away with MA, PhD, CFA, CA, and other related subjects. Please illuminate me. Salams and have a nice day.
This payment will augur well for the country and the PMLN is tackling the bull by the horns. The PPAs have to be renegotiated and the commonality in operations, finances, cost, charges, must be found to benefit all sides, which will mean the common citizens, IPPs and the government. No more wheeling and dealing but conduct an open inquiry by an independent and autonomous body; the Competition Commission of Pakistan/Court of Arbitration. If the PMLN 'boldly goes where no political party has gone before, then we can see economic jubilation rather than economic hallucination.'
Why pay Mian Mansha and others if they didnt actually produce electricity from their power plants but still billed the government for it?
Finally artificial load shedding will be ended for a while. Zardari + Nawaz Sharif Bhai Bhai and fooled awam!
And now we will have a load of "Thank you Imran Khan!" comments :P
They are going to get this through more taxes on us, not through PPP looted IPP\RPPs. they are buying property in London.
The PMLN government is moving in the right direction in resolving the massive loadshedding in Pakistan. It has to clean up the mess left by dictator Musharraf and his NRO-beneficiary PPP government. The Rental Power Policy of July 2006 has already been struck down by the Honorable Supreme Court. Journey of thousand miles always starts with a single step.
Had previous governments increased the generation of electricity companies, these private IPP's would not have existed in the country, but we are habitual of filling our own pockets, instead of thinking about progress of Pakistan.