ISLAMABAD: As the government of Pakistan looks set to clear over Rs285bn ($2.88bn) owed to Independent Power Producers (IPPs) this week, a meeting of the top economic decision making body has been called to find a way to settle thorny issues.
The maiden meeting of the Economic Coordination of the Cabinet (ECC) will be held before the end of this week. It will review the possibility of renegotiating terms of Power Purchase Agreements (PPAs) with IPPs and approve a structure for payments, sources said. The Ministry of Finance has worked out dues of over Rs290bn to be paid to 28 IPPs before June 30 as part of efforts to mop up a Rs503bn circular debt in two phases over as many months, officials working on the transaction said. All dues up to May will be cleared, they added. The amount is in addition to Rs25bn owed by the IPPs to the government on account of penalties on running plants below agreed capacity. The government wants to adjust it in its dues.
Minister for Finance Ishaq Dar has vowed to clear the dues: Rs326bn has been budgeted and will be paid before the end of this month, or 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. The payments will enable them to clear their loans and add 1,700MW to 2,000MW to the national grid to help reduce load-shedding during Ramadan.
At a post-budget press conference, Dar had announced that he would convince the IPPs to renegotiate terms of their agreements — an area where he is facing problems since the IPPs have their own arguments.
“We have achieved what we wanted to, but in a different manner,” Dar said in response to a question whether the IPPs were unwilling to renegotiate the PPAs. He said the meeting will take a final decision.
Dar wants IPPs to reduce late payment surcharges from the current rate of Karachi Interbank Offering Rate (KIBOR) plus 4 percent to KIBOR plus 2 percent, an envisaged relief of 200 basis points. He also vowed to seek the credit limit period to be extended from one month to two. But IPPs have sought additional payments for extending the credit period and refused to lower late payment surcharges.
“There is no profit in late payments. If the rates are reduced from KIBOR plus 4 percent, the IPPs will be wiped out. The IPPs make fuel supply payments in advance by borrowing from banks, while power purchases clear their dues much later,” an IPP official said. Internews
