IPPs May Seek Sovereign Guarantees Due to Payment Delays
Newztodays Team
The power division has warned the country’s economic managers that Independent Power Producers (IPPs) may start calling upon the sovereign guarantees aligned with the imposition of late payment surcharge due to delays in payments in the wake of rising circular debt.
The Shahbaz-led government has approved a Rs 125 billion supplementary grant to clear dues in the power sector to meet the target of circular debt agreed with international financial institutions (IFIs).
Due to rising circular debt, the power division has warned the country’s economic managers that independent power producers (IPPs) have been given sovereign guarantees and they may start calling upon the sovereign guarantees along with the imposition of late payment surcharge.
The Power Division has briefed the Economic Coordination Committee (ECC) in a recent meeting that the government of Pakistan is continuously working towards the resolution of the multifarious challenges surrounding the power sector of Pakistan.Govt makes Rs 134b payment to IPPs
One such major challenge is the circular debt, which stood at Rs. 2,310 billion at the end of FY-2023. Payables to power producers have reached Rs. 1,760 billion as of 31 January 2024, which is alarming. IPPs are pressing hard to maintain their debt repayments and fuel supply chain.
Therefore, immediate injections of cash flows are required to manage the liquidity needs of the power sector,” the power division said adding that payments to power producers are to be made on due dates; otherwise, it would increasingly constrain the availability of electricity, causing a slowdown in the economic growth of the country.
Further, since the payments to the power producers have been secured by sovereign guarantees issued by the Government of Pakistan (GoP), the power producers would start calling upon the sovereign guarantees along with the imposition of a late payment surcharge.
The release of subsidies would not only help to reduce the burden of financial costs but would also help meet the circular debt flow targets agreed with the IFIs.
For CFY 2023-24, a budgetary allocation amounting to Rs. 55 billion had been made for AJK Subsidy Arrears under the Finance Division’s Demand No. 45-Grants, Subsidies & Miscellaneous Expenditure.
In order to ensure liquidity, the release of the said amount is required immediately.
The Power Division requested the ECC of the Cabinet to approve the Technical Supplementary Grant (TSG) of Rs. 55 billion in favor of the Power Division, under the head IB-9054 Subsidies for AJK Receivable, to be released immediately to meet the operational requirements of the power sector.
The Economic Coordination Committee (ECC) of the Cabinet considered the Summary submitted by the Power Division regarding the “Release of Rs.55 billion in respect of AJK-TDS Arrears” and approved the proposal.
The Committee further directed that the meeting of the Committee constituted by the Prime Minister for the restoration of AJK electricity issues may be convened at the earliest for the early resolution of the issue.
K-Electric
The Power Division further briefed IPPs are pressing hard to maintain their debt repayments and fuel supply chain. Therefore, immediate injections of cash flows are required to manage the liquidity needs of the power sector.
Payments to power producers are to be made on due dates; non-payment shall increasingly accrue interest charges and increasingly constrain the availability of electricity, causing a slowdown in economic growth in the country.
It is also important to highlight that a major portion of the power sector subsidies is expected to be released in the last quarter, which may have severe financial implications for the Power Sector.
If these subsidies are released earlier, it would not only help reduce the burden of financial costs but would also help meet the circular debt flow targets agreed with the IFIs.
For the CFY 2023-24, a budgetary allocation amounting to Rs. 127 billion was made for K-Electric tariff differential subsidy arrears under the Finance Division’s Demand No. 45-Grants, Subsidies & Miscellaneous Expenditure, of which Rs. 57 billion had been released from this allocation.
Arrears of KE TDS claims mainly pertain to 24 quarters, approved for payment vide Cabinet decision ECC-216/28/2023 dated 21 June 2023. In this regard, KE had submitted claims for July 2016 to June 2022.
The Power Division requested the ECC of the Cabinet to approve the Technical Supplementary Grant (ISG) of Rs. 70 billion, as an advance subsidy to be released immediately to meet the operational requirements of the power sector in the summer.
