IPPs facing severe liquidity constraints

RECORDER REPORT

KARACHI: With low funds outlay by National Transmission and Dispatch Company Limited (NTDCL), local Independent Power Producers (IPPs) are facing substantial shortage of working capital requirements, analysts said.

However, on other side, current depreciation in PKR against USD is positive developments, which will improve the bottom line of the power producers, they added.

"With decline in international oil prices, we expect it will also facilitate the government FY13 budgetary targets for power sector subsidies," Abdul Azeem, an analyst at InvestCap said.

He said a major factor pulling the topline of the sector is the accelerated depreciation of the PKR in second quarter of MFY12 (+10.2 percent on year-on-year basis) along with increased US CPI; both of which serve as components that power sector's revenues are indexed with. "During this quarter USD appreciated by 4.1 percent against PKR therefore, we believe the power sector to take benefit of this development," he said.

With no concrete steps observed to limit circular debt in this year budget, the government seems to be more inclined towards fixing the circular debt issue with short-term measures, he noted.

"As past measures shows the government took makeshift solutions most of the time with issuance of TFCs and PIBs, we expect this issue to mount further pressure on fiscal economic factors and will remain a major challenge for the government," he said. The current decline in oil prices will also provide some breather to power companies as the low prices oil will be available for improving utilization, he added. In budget FY13 the government has proposed lower overall subsidies, out of which power subsidies stand at Rs 185 billion this time round, down 60 percent on year-on-year basis from revised estimates (PEPCO subsidy down 68 percent to Rs 135 billion, KESC's up by 11 percent to Rs 50 billion for FY13) from revised estimates of Rs 464 billion during FY12. Although decline in subsidies is expected to increase electricity charges substantially, it would improve cash flows of this sector, he said.