Triple Whammy!


The GOP has defaulted on the sovereign guarantee provided to the IPPs. The sovereign guarantee, which formed the basis of the financing and investment by the private sector in IPPs, has been defaulted on thrice by the GOP in May 2012. No measures are being taken to mitigate the situation.
S.No. 30 Day Notice Date of GOP Default Amount
1 19 March 2012 5 May 2012 18,540,359,302
2 4 April 2012 22 May 2012 6,298,781,523
3 12 April 2012 29 May 2012 1,196,229,572
TOTAL 26,035,370,397
Further two notices issued by the IPPs in May and June 2012 are also expected to go unnoticed, resulting in two more defaults in end June and end July respectively.
The sources in the Ministry of Water and Power concede that the government of Pakistan has defaulted on its sovereign guarantee three times since March 2012. They said that these IPPs are in fact doing a favour to the power consumers by producing electricity from whatever daily payments are made to them. In fact they conceded the daily payments hardly cover 40 percent of the fuel expenses of these eight IPPs. The country thus remains deprived of around 1,000 MW of electricity they admitted.
The government of Pakistan also failed to honour the decision of the Economic Coordination Committee of the cabinet to pay Rs18 billion immediately. After the GOP default, the IPPS asked the government to pay at least Rs18 billion and ensure supply of fuel in case the future payments are delayed.
An analyst Intazar Mahdi confirmed that it is now an established fact that the government has defaulted on its sovereign guarantees. He said the affected parties have the right to go to the courts inside and outside Pakistan for redemption of guaranteed amount. Left with no choice, when the IPPs exercise this option Pakistan’s credit rating would be downgraded to ‘junk’ and ongoing discussions with the IMF would be seriously jeopardised.
The foreign reserves of Pakistan are already depleting and with principal IMF repayments coming up, this would pose a serious problem. The rating of Pakistan bonds in the international markets is also affected with yields at record high. This will have a serious impact on the ability of Pakistan to raise debt in the foreign markets. With a GOP default, any future investment in the power sector would be impossible to arrange. Unfortunately it appears that there is no light at the end of the tunnel also.