Weak, lacklustre, sluggish these are the kind of adjectives used for the performance of power sector IPPs in 1HFY17. The independent power producers have witnessed a period of decline in earnings, which could well go beyond 1HFY17 as the sectors key issue - non-payment of dues by the power purchaser NTDC remain adamant.
A glance at the key listed IPPs, namely Hub Power Company Limited, Kot Addu Power Company Limited, and Nishat Groups NPL and NCPL show that all power companies witnessed a decline in revenues for the first six months of FY17, which has not only been due to lower oil prices but also lower generation.
Even though the finance cost borne by these IPPs has generally been lower in 1HFY17, the earnings have been slow-moving. Aggregate revenues of the big four listed IPPs have been down by around six percent year-on-year, while the profits have been lower by a seven percent year-on-year. In short, tepid growth in earnings has largely been due to a gradual decline in penal mark-up income, muted growth in O&M savings along with restricted topline among the IPPs.
And now, power sectors biggest nightmare, circular debt is back with a vengeance, with over 10 IPPs reporting to have started invoking sovereign guarantees for bill recovery. This is a big deal and last time it happened was in 2014. But the government made pretentious promises for clearing its dues, which might happen this time too. The latest in this case has been a hopeful meeting between the IPPs and the Private Power and Infrastructure (PPIB) board over payment issues.
While a lot of the sectors operational performance depends on the payment of dues, growth and expansion projects particularly by Hubco on local coal have the tendency to lift the sectors earnings. Where Nishat Groups imported coal projects have their scepticism, Kapcos 660MW coal power plant is expected to reach financial close sometime in 2017. Hub Powers expansion into coal fired power through its 46 percent stake in China Power Hub Generation Company Limited is also moving ahead as the 2x660 MW plants are now part of CPEC.
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