Inside Financial Markets

IPPs withdraw cases against govt

ippHonouring commitments: Appeased for now, IPPs withdraw cases against govt

LAHORE:  Independent Power Producers (IPPs) have agreed to withdraw their cases against the federal government and generate additional power during the month of Ramazan, while also agreeing to extend the credit period for payments from the current 30 days to 60 after due process.

“Investors’ confidence in the power sector has been restored somewhat through the steps taken by the current government, the most important of which is the release of Rs326 billion to clear the circular debt,” IPP Advisory Council Chairman Abdullah Yousaf told The Express Tribune. “This remarkable step forces IPPs to withdraw cases [pending in the Supreme Court]. We are expecting that the remaining payment, to be released later this month, will help clear up the circular debt entirely,” he added.

Energy sector experts said that the previous government had not only failed to settle financial issues concerning the power sector, it had also damaged investors’ confidence when it dishonoured its own sovereign guarantees. They also criticised the past government for producing expensive power by using inefficient plants and unnecessarily delaying payments.

The PML-N government had to bear Rs45.63 billion in additional expenses on account of bank interest accrued due to the non-payment of dues to IPPs by the previous government during the last couple of years, experts said.

The new government, right after taking charge, had announced that it would clear all outstanding dues of IPPs and other entities within 60 days in a bid to improve power generation and shorten the gap between demand and supply of energy. The government made good on its promise and last month cleared approximately Rs326 billion owed to different power producers.

Experts claim that had the previous government followed the economic order to generate power and utilise available resources in the best possible way by allocation more fuel to efficient power plants, it would have saved costs and brought down the per unit price of electricity. Not only that, the number of hours of load-shedding would have been much less in many cities of the country, they claimed.

As per our sources, the national exchequer lost around Rs25 billion in 2012 alone only because the previous government wouldn’t prioritise cheap energy. Fuel guzzling plants were allocated scarce resources easily on credit, while fuel-efficient plants shut down due to cash flow issues.

IPPs and the National Transmission and Dispatch Company (NTDC) have recently signed a Memorandum of Understanding (MoU) to resolve disputes and facilitate the government in managing cash flows in a better way. IPPs including Liberty Power Tech, Hubco Narowal Project, Nishat Chunian Power, Nishat Power, Sapphire, Atlas Power, Saif Power and Halmore have signed the MoU.

But even though the new government seems on track to finding a resolution the circular debt issue, it will take a long time to restore the confidence of investors, Yousaf warned. “New power plants may still not be established in the future due to the poor track record of the PPP-led government,” he said. “Even though some confidence has been restored for current investors, it will take time for the confidence to rebuild fully. I am hopeful that, with the clearance of circular debt, the announcement of a power policy will play an important role in this regard,” Yousaf added.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)