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ISLAMABAD: Minister for Planning, Development and Special Initiatives, Asad Umar and Prime Minister Advisor on Institutional Reforms and Austerity, Dr. Ishrat Hussain have taken different approaches to the future payment mechanism for IPPs, well-informed sources in Power Division told Business Recorder. This was witnessed at a recent meeting of Economic Coordination Committee (ECC) of the Cabinet when the criteria for disbursement of Rs 200 billion Islamic Sukuk facility came under discussion, the sources added. The Central Power Purchasing Agency-Guaranteed (CPPA-G) has disbursed Rs 200 billion amongst 75 energy sector entities in the light of an ECC decision. Power Division, in its summary said, the ECC in its meeting held on May 29, 2020 constituted a committee under the chairmanship of Minister for Planning, Development and Special Initiatives to deliberate on the proposed criteria for disbursement of Rs 200 billion Islamic Sukuk facility.

Accordingly, the committee met on May 29, 2020 and considered the proposals submitted by the Power Division. In the meeting CPPA-G highlighted that the power sector was under a severe financial stress because of the Covid-19 pandemic in the country and sustainability of power during summer is the immediate concern and all efforts are being made to keep the sector afloat during the peak summer season through ensuring maximum generation. The disbursement of Rs 200 billion raised through Islamic Sukuk was aimed at this objective and it is being considered as one-off disbursement under special circumstances.

The committee also considered the following facts ;(i) at this stage power sector is under severe cash shortfall and ensuring sector sustainability is critical;(ii) next three months cash flow shows a steep buildup of circular debt due to various reasons including lowered recoveries due to Covid-19 situation, tariff freezing including monthly and quarterly adjustments, delayed payment of GoP support on the deferred bills, SME support, loss of sales etc. These factors will add approximately Rs 270 billion to Circular Debt (CD) in the next three months; and (iii) the proposed disbursement has been structured in a manner that maximum generation remains in the national grid during the next three months. This requires payments of energy component (including fuel, variable O&M, GST) and capacity component (debt repayment).

The sources further stated that after detailed deliberations the Prime Minister Advisor on Finance/ Chairman ECC advised to ensure following guidelines while planning of the disbursement which was endorsed by the committee ;(i) all the IPPs and Gencos must get the funds following the same principle i.e. energy payment( fuel, variable O&M and GST to keep these operations during next three summer months. Consistency of principle is to be ensured ;(ii) CPP to those IPPs where the debt servicing is due during the next three months and ;(iii) any exception to above principles should be explicitly stated.

Power Division maintained that based on these guidelines the allocation has been revised accordingly on the following principles ;(i) EPP inclusive of GST will be paid to ensure maximum generation is available during next three summer months( June, July and August 2020), according to the generation plan for next three months;(ii) capacity payments will be disbursed to meet the debt servicing and taxation requirements for the period from June to end August 2020;(iii) payment to Wapda, nuclear power plants and partial settlement of import of power from Iran and NTDC transmission charges will be disbursed separately for operational requirements for the public sector plants and entities, as Wapda and nuclear power plants comprise of more than 30 per cent of the total planned generation in the next three months and ;(iv) These disbursements will strictly be followed for funds released under Rs 200 billion only.

The sources maintained that during the ensuing discussion, Minister for Planning, Development and Special Initiatives, Asad Umar, who is said to have recently built the case to terminate CEO, CPPA-G against the wishes of Power Division, informed the meeting that the committee, constituted by the ECC under his chairmanship considered the issue in a holistic manner and after detailed deliberations, has devised certain guidelines for disbursement of Rs 200 billion Islamic Sukuk facility focusing on maintaining of consistency and sustainability of the power sector during the next three months (peak months for power requirements). He suggested certain principles for making future payments to power sector entities in a transparent manner. However, Prime Minister Advisor on Institutional Reforms and Austerity, Dr. Ishrat Hussian, who is a former Governor SBP, rejected the proposal of Asad Umar, saying that the ECC should not be involved in transaction-oriented business rather it should look at larger policies like circular debt, etc.

"The ECC should look into the basis/principles on which these payments should be disbursed. They should not do micro management," Hussain has been quoted by sources as saying. The ECC discussed in detail and approved the criteria exclusively for disbursement of Rs 200 billion in power sector received through Islamic Sukuk.

The ECC emphasized upon principles for making payments to power sector entities should be in a transparent manner and there should be no discretion used in this regard. The details of disbursement may be placed on the website for the information to general public.

The sources further stated that the ECC directed Power Division to devise principles/formula for disbursement of future payments to power sector entities in a transparent manner in consultation with stakeholders, within two weeks and submit to the ECC for consideration.

Copyright Business Recorder, 2020