Non-payment of dues: four IPPs threaten to stop power production

The month-long notices, given to the Ministry of Water and Power, by four independent power producers (IPPs) for clearance of their outstanding dues amounting to Rs 16.43 billion, expire on Monday. The notices said that in case of non-clearance of the dues they would close down their thermal power producing units, Business Recorder has learnt.
According to documents available with Business Recorder, the overdue amount of these four IPPs stood at Rs16.43 billion on May 13, 2011, when notices were served to the Ministry of Water and Power and Pepco. Out of the amount, Rs 3.583 billion dues belong to Atlas Power, Rs 3.719 to Liberty Power, Rs 4.628 to Nishat Chunian and Rs4.5 to Nishat Power.
These notices were served on or around May 13 by four IPPs, namely, Liberty Power, Atlas Power, Nishat Power and Nishat Chunian, informing the federal government that the power purchaser, a Pepco subsidiary, had failed to clear the dues within agreed period for power supplied to it. Since the government of Pakistan was the sovereign guarantor, they have invoked that guarantee.
In their letters they have furnished proof that they had approached the government after exhausting all legal avenues including serving the power purchaser with notices for release of overdue payments.
The notice given by Atlas Power Ltd says: "This is to notify that the National Transmission and Dispatch Company Limited Power Purchaser has failed to make payment to the company as required from it under the power purchase Agreement (PPA) dated September 6th 2007 executed between the Power Purchaser and Atlas Power Limited. Consequently, demand for payment in the form of notices under section 16.2 of the PPA have been served on the Power Purchaser with copies to the Government of Pakistan Private power and Infrastructure Board, as per the requirement s of Section 16.9 of the PPA . The same are enclosed herewith for reference."
The notice further says: "Therefore, in accordance with section 1.5 of the Guarantee, you are hereby notified that Rupees three billion five hundred eighty three million seven hundred fifty seven thousand and six hundred ninety-nine only is due and payable by the Power Purchaser under the PPPA , as specified in detail in the enclosed notices".
Maqsood A Basraa, the Chief Executive Officer of Atlas Power Limited had written and forwarded this letter to the Deputy Chairman, Planning Commission and Secretary Ministry of Water and Power.
Another letter written by Independent Power Producers Advisory Council to the Secretary Water and Power, which says:
"We are sorry to bring to your notice the discriminatory system in disbursement of funds released by Government as there is no transparency in the system of disbursement and hence inequitable treatment of IPPs. This situation creates resentment among the producers who are desperate and thinking to take up the issue at the highest legal forum which could help them out. This would be unfortunate extreme step if pursued."
Independent economists have warned that suspension of power production by these four independent power producer will not only plunge the country into grave energy crisis but would also have enormous implication for the government in case of sovereign default by not responding to the notices of several IPPs.
"These notices are a serious matter and the government/Pepco should not take it lightly as non-compliance on these notices would be the first step towards sovereign default," warned an expert. He said that after expiry of 30 days'' notice period (13 June 2011) the aggrieved power companies would give 10 days'' notice to the federal government for clearance of their dues.
"The matter of payment is now between the government of Pakistan and the IPPs, as the power purchaser has already defaulted" he said, adding that after this default these companies can invoke the sovereign guarantee. Global rating agencies factor the response time of the government in case a sovereign guarantee is invoked.
Another expert questioned the wisdom of delaying these other small payments at a time when the country is facing a wide gap between demand and supply of electricity.