THURSDAY SEPTEMBER 08: Payment to IPPs: Finance may borrow Rs 100 billion from banks

ISLAMABAD: The Finance Ministry is likely to borrow Rs 100 billion from commercial banks to pay at least half of the overdue amount of independent power producers (IPPs), against total dues of Rs 210 billion.
The committee on energy, headed by Finance Minister Dr Abdul Hafeez Shaikh, on Wednesday discussed different options for arranging the huge amount required by the power sector to avert a deepening power crisis that would further compromise growth in all sectors.
The IPPs account for over 50 percent of total power generated in Pakistan due to the failure of successive governments to undertake hydropower projects, the cheapest source of energy. "The government has to inject substantial amount to facilitate the IPPs to run their financial affairs smoothly," said IPPs Advisory Council Chairman Abdullah Yusuf while talking to Business Recorder.
The committee will meet with Prime Minister Yousaf Raza Gilani on Thursday to discuss different options to resolve inter-circular debt, which basically has put the entire energy sector at risk. Sources in the Finance Ministry said that the government had earmarked nothing in the federal budget for 2011-12 to clear the overdue amount of the IPPs. However, now with the IPPs' increasing pressure on the government with the threat of invoking GoP guarantees, the economic managers are compelled to move expeditiously.
"The government has to arrange about Rs 100 billion, as 'supplementary grant', to pay the IPPs or borrow from the banks. The IPPs have no other option but to go for legal remedies if the government fails to fulfil its commitment," commented a power sector analyst.
The proceedings of the third meeting focused on the issues related to power generation especially the IPPs including the circular debt, outstanding payments and a sustainable way forward to devise a permanent solution to the liquidity issues of the sector. The committee held detailed discussion with the representatives of the IPPs. Two smaller committees, with a clear mandate, were formed. These subcommittees will develop proposals for the resolution of issues highlighted during the third meeting. According to the IPPs Advisory Council, if the backlog of overdue amount is not cleared, power production constraints would further aggravate power shortage.
Currently, the country is facing shortage of about 4000 MW, mainly due to mismanagement and inter-circular debt. Sources said that the committee would recommend immediate increase of electricity prices by up to 12 percent to the Prime Minister which the committee believes is necessary to deal with inter-circular debt.