Government urged to continue disbursing overdue amounts: IPPAC proposes raising Rs 150 billion through bonds, TFCs

The Independent Power Producers Advisory Council (IPPAC) has recommended to the government that Rs 150 billion of bonds/ TFCs/sukuk should be raised to clear the dues of the power generation companies, having a large share in the circular debt. It has also suggested that the government should disburse overdue amounts to the industry in a transparent and equitable manner.
The government intervened just in time to save the IPPs from closure by disbursement of Rs 15 billion in a transparent and equitable manner, it said, adding that "in order to ensure adequate supply of electricity, particularly in the summer months, it is critical that the government should continue to disburse overdue amounts to the industry in the same manner".
As the nation''s attention turns to the gravity of the worsening energy crisis, the growing supply/demand gap for electricity is causing losses in billions of rupees due to low production activity, creating a crisis-like situation for industry, and huge problems for the domestic consumers. Pepco''s current installed capacity is around 19,445 MW, out of which currently dependable capacity is almost 13500 MW.
Power supply companies are dealing with a shortfall of around 4000 MW. Power generation from major hydro power stations is running at only 33 percent of total capacity due to shortage of water, and currently power sector is mostly depending on thermal power generation from IPPs and gencos, which are almost 67 percent (12230 MW) of total installed capacity of Pepco. In thermal power generation IPPs and gencos are running their power plants on gas and oil.
Pakistan Electric Power Company (Pepco) is unable to pay to IPPs and gencos. The overall payables of Pepco are more than Rs 288 billion, out of which Rs 182 billion are payable to the independent power producers (IPPs) which is 63 percent of total payables.
The resolution of circular debt is necessary as this will ease supply constraints. The task is challenging since it requires the outstanding stock of circular debt to be cleared before plugging further build-up of circular debt. Paying them will help in bringing them into full operation and ease the crisis to some extent.
Realising the urgency of the issue, the government released Rs 15 billion to IPPs, which is over and above the normal payments to cover part of the overdue amount of IPPs. The government has assured release of further amount to cover all the outstanding payments.
The Independent Power Producers Advisory Council (IPPAC) has suggested a mechanism to the government, that whenever the funds are made available for payment of overdue amounts, these should be disbursed in an equitable and transparent manner so that there would be no resentment among the IPPs. Non-payment to IPPs results in less generation and causes power crisis.
IPPAC has also proposed criteria for disbursement of payables to IPPs. Hubco and Kapco have major outstanding amounts of Rs 70 billion and Rs 52 billion which are 68 percent of total overdues of IPPs whereas their dependable capacity is around 33 percent (2586 MW). Other IPPs, which account for 32 percent of receivables (Rs 60 billion) have a dependable capacity of around 67 percent (4700 MW).
The following recommendations have been made by IPPAC:
-- Almost Rs 150 billion of Bonds/ TFCs/ Sukuk should be raised to clear the dues of Kapco, Hubco and Pepco which have a large share in the circular debt.
-- Cash payment be made to other IPPs which have lower share of the circular debt (Rs 60 billion).
-- Criteria for payment of overdue amounts for the time being are as under:
i. For oil-based plants overdue amounts exceeding 45 days.
ii. For gas based plants overdue amounts exceeding 60 days.
IPPAC has thanked the government, in particular the ministry of water and power and ministry of finance for timely release of Rs 15 billion which will alleviate the cash flow problems of IPPs for the time being. It is imperative that the government takes immediate action to deal with this circular debt crisis on immediate basis.