Coping with IPP payments
After repeated demands of payment of arrears spread over months, nine out of 29 IPPs have invoked sovereign guarantee while 18 others are expected to follow suit. As overdue sums stretch from two to nine months, it is not difficult to realise the plight of the IPPs. Except for Hubco and CPCO which are provided fuel by PSO on credit, the rest depend on the payments made by the government to purchase it. If government dues remain stuck up the, power producers have to seek bank loans. This too is no more possible as the IPPs have exhausted their limits with the banks which are unwilling to extend them because of over-exposure to the power sector. Failure to make timely payments to the IPPS has already led some to reduce production. Had the IPPs been working on full capacity, the loadshedding would have been considerably reduced. After the expiry of 30 days of the notice invoking sovereign guarantees, the aggrieved power companies are likely to give 10 days’ notice to the federal government for clearance of their dues. Failure to pay would constitute sovereign default.
The government finds it difficult to pay because it has failed in its duty to collect the full dues. Bad governance has led to line losses, power theft and lack of timely payment by important government departments. This has in turn multiplied the financial burden and added to the circular debt. These factors are causing a loss of Rs 350 billion per year to the national exchequer. In the last three years the government has reportedly incurred losses of Rs one trillion.
Shortage of power has affected all spheres of life. The industry has suffered production losses. Its impact has been felt by the agricultural sector where many tubewells depend on electric power. In cities, businesses have suffered losses. With industrial units failing to work on full capacity, thousands of workers have lost jobs. The piecemeal workers’ earnings have considerably gone down due to loadshedding. The government simply cannot afford to allow the IPPs to close down. It has got to urgently arrange funds to keep the system working. After it gets a breather, the government needs to work out a final solution to the problem of circular debt.
