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ISLAMABAD: The Finance Division has sought expenditure details of Rs 601 billion extended to the Power Division to clear liabilities of Independent Power Producers (IPPs) and Government-owned Power Plants (GPPs) and its benefits, well-informed sources told Business Recorder.

The Finance Division, sources said, has referred its Office Memorandum (O.M) of May 11, 2023 on the approval of payment mechanism, Novation Agreement, Master Agreement and Power Purchase Agreement (PPA) amendment agreement along with PPA amendment for Uch Power (Pvt) Limited and stated that the Finance Division has provided funds of Rs.601 billion till June 30, 2023 on account of IPPs/GPPs settlement.

The Power Division has been requested to provide a position paper on the following outcomes in light of the IPPs /GPPs settlement plan but reply is still awaited: (i) reduction in capacity payments; (ii) tariff discounts availed; (iii) reduction of exchange of late payments; (iv) circular debt stock reduction impact; (v) circular debt flow reduction; (vi) reduction in available O&M; (vii) exchange rate of US$ and US CPI indexation; and (viii) any other financial benefit to GoP.

CPEC IPPs: Finance Division asks PD to adjust Rs20.726bn as advance payment

The International Monetary Fund (IMF) in its Standby Arrangement (SBA) has urged the government to renegotiate remaining PPAs in return for clearing unguaranteed CPPA-G arrears as the Authorities claimed that they will settle up to Rs 180 billion earmarked for IPPs and government power producers with revised PPA terms, using the established contract structure (10-year floating-rate PIBs and 5-year Sukuks in equal parts, or more efficient financial instruments).

Pakistani authorities argued that as per the established principle, the government will strive to reduce capacity payments, as it pays arrears, either by renegotiating PPAs or by lengthening the duration of bank loans, depending on adequate budget space and CDMP implementation progress. The same principle applies to the assumption of PHPL amortization by the federal budget.

The issue of Chinese IPPS established under China Pakistan Economic Corridor (CPEC) is also still unresolved as plants are not getting due amounts.

However, the Central Power Purchasing Agency–Guaran-teed (CPPA-G) and the Government of Pakistan (GoP) has approved opening of an Assignment Account tiled “Pakistan Energy Revolving Fund” to be operated by CPPA to address shortfall in the liquidity issues.

The CPPA-G argues that pursuant to the decision, Ministry of Finance, Ministry of Energy (Power Division) and CPPA-G created Pakistan Energy Revolving Fund having a space of Rs 50 billion with State Bank of Pakistan from its own sources, thereby allowing withdrawal of Rs 4 billion per month against invoices starting from November 2022. This fund has been adequately funded by Ministry of Finance which is operational.

According to CPPA-G, in essence the requirement of Revolving Account which is meant to deal with the 22 per cent shortfall is being taken care of by the Government of Pakistan through special payments and Pakistan Energy Revolving Fund.

“We are hopeful that in future we will be able to cover maximum possible payments against invoices through the approved arrangement and hence the requirement for opening of Revolving Account is deemed to be satisfied,” said Deputy General Manager (Finance) CPPA-G, in a letter to Secretary Planning Division.

Copyright Business Recorder, 2023

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