THE government’s plan to settle the outstanding dues of IPPs amounting to Rs450bn in three tranches is only the first step towards liquidation of the power sector’s circular debt. According to reports, the IPPs will get 30pc of their existing debt stock this month and the remaining amount in two equal tranches in June and December. Under the plan, one-third of the arrears will be paid to the power producers in cash and the remainder in the form of Pakistan Investment Bonds at the floating rate. The IMF also gave its nod to the plan after the government agreed to heftily increase the base electricity tariff as demanded by the lender of the last resort. The payment of the first tranche will immediately lead to materialisation of the MoUs signed between the government and power producers in August last year into formal agreements. The MoUs provide for changes in the terms of the existing power purchase agreements that will reduce the size of the guaranteed capacity payments or fixed costs paid to the IPPs, a major source of accumulation of the circular debt. The government is expecting savings of Rs850bn over a period of 10 years, following the modifications in PPAs. The IPPs, which had demanded full payment of their money before they agreed to implement their revised PPAs, seem to have moved away from their earlier position in the ‘larger interest of the country’ as the plan will also help them improve their tight liquidity position and make new investments in new schemes.
The settlement scheme covers the 50-odd IPPs which were set up in the 1990s and 2000s and had consented to the alterations proposed in their power purchase deals with the government. The majority of these plants have completed their life cycles or paid off their debts. Therefore, we should not expect an immediate resolution of the circular debt problem even after materialisation of the revised deals with the IPPs. In recent years, the major build-up in the circular debt has been caused by capacity payments to large power projects set up since 2015, primarily as part of the multibillion-dollar CPEC initiative, with Chinese money. So far, no progress has been made to get the terms of the PPAs with these companies renegotiated although we are told that contacts have been made with Beijing at the highest level. Until these contacts pay off, the resolution of the mounting power-sector debt will have to wait.
https://www.dawn.com/news/1599538/circular-debt
Circular debt: Editorial in Dawn, January 4th, 2021
THE government’s plan to settle the outstanding dues of IPPs amounting to Rs450bn in three tranches is only the first step towards liquidation of the power sector’s circular debt. According to reports, the IPPs will get 30pc of their existing debt stock this month and the remaining amount in two equal tranches in June and December. Under the plan, one-third of the arrears will be paid to the power producers in cash and the remainder in the form of Pakistan Investment Bonds at the floating rate. The IMF also gave its nod to the plan after the government agreed to heftily increase the base electricity tariff as demanded by the lender of the last resort. The payment of the first tranche will immediately lead to materialisation of the MoUs signed between the government and power producers in August last year into formal agreements. The MoUs provide for changes in the terms of the existing power purchase agreements that will reduce the size of the guaranteed capacity payments or fixed costs paid to the IPPs, a major source of accumulation of the circular debt. The government is expecting savings of Rs850bn over a period of 10 years, following the modifications in PPAs. The IPPs, which had demanded full payment of their money before they agreed to implement their revised PPAs, seem to have moved away from their earlier position in the ‘larger interest of the country’ as the plan will also help them improve their tight liquidity position and make new investments in new schemes.
The settlement scheme covers the 50-odd IPPs which were set up in the 1990s and 2000s and had consented to the alterations proposed in their power purchase deals with the government. The majority of these plants have completed their life cycles or paid off their debts. Therefore, we should not expect an immediate resolution of the circular debt problem even after materialisation of the revised deals with the IPPs. In recent years, the major build-up in the circular debt has been caused by capacity payments to large power projects set up since 2015, primarily as part of the multibillion-dollar CPEC initiative, with Chinese money. So far, no progress has been made to get the terms of the PPAs with these companies renegotiated although we are told that contacts have been made with Beijing at the highest level. Until these contacts pay off, the resolution of the mounting power-sector debt will have to wait.
https://www.dawn.com/news/1599538/circular-debt
Published in Pak Media comment and Pakistan