IPPs propose debt swap with PEPCO

Independent Power Producers (IPPs) have sent a proposal to the government asking it to transfer its debt
to PEPCO’s balance sheet as the latter owes IPPs Rs140 billion.
An industry source said that the proposal had been made recently to the Ministry of Water and Power considering the precarious financial conditions of the government with regards to timely payment of dues
to the energy sector. He said that the government was considering the proposal and has not replied yet.
The government is facing problems in ensuring fuel supplies to IPPs which has led to a massive decline in power generation in the country this summer. The delay in timely payments forced four new IPPs to invoke sovereign guarantees to clear their dues to the banks. The government took urgent steps to force withdrawal of their notices.
The IPPs owe around Rs140 billion to the local banks for the last fiscal year alone; the source said, adding that chances of clearance of such huge amount immediately by the government were bleak.
The proposed loan swap could be implemented as the local
banks had advanced credit to IPPs on government guarantees.
Transferring IPPs liability to PEPCO’s books would immediately clear their liabilities and interest at a rate of of 4.5 percent. Putting the loan on PEPCO’s balance sheet would make it allowable expense under the National Electric Power Regulatory Authority (NEPRA) rules. It is important to mention that since NEPRA was not treating these liabilities as allowable expense, PEPCO was forced to pay Rs15 billion in interest.
If approved, the government would reduce its liabilities and the created fiscal space would allow more power generation and thus more revenues, the source said, adding that it would relieve the financial burden of the new IPPs that were facing a lot of problems in their operations.
During the last three year’s Pakistan’s installed electricity generation capacity has risen from 18,000 MW to over 21,000 MW on June 30. The demand has also risen from 15,000 MW to 18,000 MW. However, the generation remains limited to 13,000 MW. This is largely due to the fact that the government has no money to pay for fuel supplies to IPPs, therefore the available capacity cannot be added to the national grid.
According to the Economic Survey of Pakistan the availability of energy is a major hindrance to economic growth. The sentiment has been voiced by numerous industrialists across the country who are suffering from a shortage of electricity.
The Economic Survey of the last fiscal year found that energy availability remained main impediment to economic growth. The growth prospects of the economy in the last fiscal year were constrained by the availability of energy.
The electricity crisis in the country has been exacerbated with the Rental Power Plants operating at less than 50 per cent of their actual capacity since the government is finding it hard to make payments for fuel that is required to produce more electricity. The circular debt has further contributed to debilitate the economy with power distributors such as the KESC, Pepco, Hubco and state owned fuel suppliers like Pakistan State Oil (PSO) and partially state owned Pak Arab Refinery (PARCO) being ensnared in the ‘circular debt’ trap.
According to a report by the Auditor General of Pakistan, there have been massive levels of irregularities in multi-million dollar power plants that have costed the national exchequer to the tune of $ 557 million. Yet the government continues unabated, investing in the IPPs.