Govt has 30 days to avoid blackout


As nine out of 29 independent power producers (IPPs) finally invoked sovereign guarantee after the Pakistan Electric Power Company (PEPCO) failed to pay them Rs 211 billion in dues, the country could be plunged into darkness if the IPPs shut down their units and deprive the national grid of 6,000 megawatts of electricity if their dues are not settled within the next 30 days.
Of the 29 IPPs, only two – HUBCO and KAPCO – are run on fuel supplied by Pakistan State Oil (PSO). The other 18 IPPs are also expected to give a 30-day notice and shut down their operations if their dues are not cleared. Addressing a news conference, IPP Advisory Council (IPPAC) Chairman Abdullah Yousaf said the notices had been sent with a “heavy heart” and notices from another 18 IPPs would follow suit, who have been put “against the wall.”
IPPAC had earlier warned the government on August 8 that they were forced to close down due to precarious financial conditions. He said the government was evading the issue and nobody was taking charge. “We are still trying to make someone in the government listen to our demands and allows injection of money to keep the system running,” he said. The notices have been served by Atlas, Attock Gen, Liberty, Nishat Chunian, Nishat, Orient, Sapphire, Halmore and Saif Power.
The overdue sums stretch from two to nine months. Out of this amount, the dues to HUBCO and KAPCO are Rs 130 billion while the balance for all other IPPs is Rs 81 billion. The IPPs that have served notices have a dependable capacity of almost 900MW and have a total overdue amount of Rs 31 billion. Out of these, four are gas-based, which would require Rs 120 billion for running on diesel while the power tariff will have to be increased by 10 percent.
Yousaf explained that fuel supplies to HUBCO and KAPCO were provided by PSO on credit while all other IPPs had to make their own arrangements for fuel. PSO, he said, was in dire straits as it had to pay Rs 20 billion for its maturing LCs within the next three days or it would default. “PSO is thinking of canceling some of its imminent LCs,” he added. IPPs, he said, had exhausted their limits with the banks, which were not willing to increase the limits because of over-exposure to the power sector.
The IPPs’ monthly billing to PEPCO was Rs 56 billion, while the payment was less than half of that, he said. On late payment, PEPCO was liable to a penal interest charge of 4.5 percent above KIBOR, which was Rs 26 billion for the last fiscal year. He said the government’s decision to not pass on the cost differential of almost Rs 2 per kWh to consumers was resulting in a massive subsidy of Rs 190 billion per year. On the other hand, because of various structural and governance issues of PEPCO, there was another cost of Rs 170 billion.
Both these factors caused a loss of Rs 350 billion per year to the national exchequer, he said. In the last 3 years the government had incurred losses of Rs 1 trillion, he added. He said the banks were reluctant to finance IPPs as the government had defaulted on the payment of Rs 40 billion in interest for the Rs 300 billion taken to settle the circular debt. The payment was due on June 30.
He said the State Bank of Pakistan had given relaxation to clear the amount by September 30. He said the government needed to ensure that PEPCO’s receivables were collected both from the public and private sectors, and that the current situation of non-recovery could not continue. In the absence of a much-needed cash injection, there was a serious threat of plant closures, he added.