By sovereign default on Rs34 billion non-payments to Independent Power Producers (IPPs), the federal government has not only jeopardised over Rs200 billion investments made in power sector, but also put the country’s financial ratings on stake that could cause irreparable loss to Pakistan.
Speaking to Pakistan Today, financial analysts indicated that if the sovereign default issue is rose on any international forums outside the country, Pakistan would have to face very very serious repercussions. The country’s fiscal ratings will nosedive. Global financial sector will stop honouring financial instruments of Pakistani banks, which would badly affect the country’s international trade.
They further pointed out that foreign loans, including from World Bank and IMF, for the country would become a dream. Under the law, the government was bound to honour its sovereign guarantee as it was the only guarantee that attracted investment in the country, they underlined.
On the other hand, sources in the IPPs’ Advisory Council warned that if the government did not honoured its commitment, foreign investors could even go to the extent of attaching Pakistan government’s properties in foreign countries to recover their losses. “We are in a catch-22 situation because of the impasse created by the government that is not prepared to act rationally,” said an official of the Advisory Council.
IPPs Advisory Council officials also hinted that managements of these IPPs did not want to go to point of no return, but wanted to persuade the government to honour its commitment. Because they recognised that once the case was put in the global financial market their investment would go in drain, they highlighted.
The government had defaulted on payment of Rs34 billion to eight IPPs on Friday, which had severely shaken to confidence of foreign stakeholders in the energy sector amid acute power shortage. On Thursday, eight power produces served a fresh notice of payment of Rs12 billion to the government. This was the fourth notice in row by these eight IPPs that are generating around 1700 MW of electricity.
‘From now on, we will be defaulting on our projects’ loans amounting to $1.6 billion, in which various banks are involved. One can imagine, how massive our loss will be,’ said a member of IPPs Advisory Council. He revealed that these eight power produces owed Rs40 billion bank loans. In addition, their projects costs of $1.6 billion (with 80 per cent bank loan), so in actual it amounts to the total investment of around Rs200 billion, he maintained.
Ironically, he said, the government instead of clearing its outstanding dues kept asking IPPs to withdraw their notices. Despite a number of meetings between the representatives of IPPs and Ministry of Water and Power along with Finance Division before submitting the final notice, the government was still nonchalant towards the financial woes of the IPPs, which were producing around 1,700MW.
We’re dead ducks… oh yes we are
