Energy, debt payments: Lucky Electric seeks amendment to existing allocation formula

ISLAMABAD: Lucky Electric Power Company has sought amendment to existing allocation formula by adopting the waterfall mechanism with priority payment to energy and debt payments.

In a letter to Chief Executive Officer (CEO), CPPA-G, Lucky Electric Power Company’s CEO Ruhail Muhammad has stated that since achieving COD in March 2022, the company’s challenge on the payable’s side is two-fold.

First, ensuring consistent coal supply by making timely payments to suppliers, and second, timely debt servicing to avoid default by the company.

According to CEO of the power company, he was informed from time to time by CPPA-G that they endeavor to pay 85% of all invoices to all IPPs. However, the power company has only received 78% of its invoices since March 2022 (its COD) and more specifically for December 2022 plus January 2023, this has dropped to 66.5 per cent. Resultantly, the Company has defaulted on debt servicing obligation due on December 31, 2022 and January 31, 2023. The company was also unable to settle SECMC (Thar mine) invoices for coal supplies and O&M contractor invoices.

The company, therefore has requested a substantial lump sum payment to correct the anomaly and to be current on its payables. The company has also conveyed its reservations on the formula of allocating payment to the IPPs based on the overdue amounts and without considering energy and debt servicing requirements as this policy is discriminatory to those thermal IPPs which are getting dispatched. A new thermal IPP like Lucky ends up paying the entire collection to pay off its invoices for fuel (coal) and debt servicing so if the collection is 85 percent it means the company has to pay O&M from its working capital plus zero collection on account of ROE and insurance. However, an old RFO-based plant that is hardly dispatched (hence no fuel payments and no debt servicing) manages to not only collect its O&M costs but also recover a substantial portion of its ROE.

Copyright Business Recorder, 2023