Recovery of dues against power sector: PSO urges government to implement 'agreed' pricing mechanism

Pakistan State Oil (PSO) has requested the government to implement the pricing mechanism agreed by all the stakeholders to resolve the issue of outstanding dues against power sector. According to reliable sources the pricing mechanism was agreed on March 22 in a high-level meeting chaired by the Special Secretary Finance and attended by representatives of the Ministry of Water and Power, Ministry of Petroleum and Natural Resources and PSO.
Sources said the meeting decided in principle that the financing cost of short term loads/ODs, interest, default penalties, etc, will be borne by the Ministry of Water and Power and recovered by PSO through the FO pricing mechanism. "It is the only viable solution for recovery of huge outstanding dues against power sector which now stand at Rs 144 billion," sources added. Pakistan Electric Power Company (Private) Limited (Pepco) is allocating only 20 percent of their collections to PSO, while average monthly collections of Pepco stand at Rs 30 billion against average monthly furnace oil supply of Rs 32 billion. It is little wonder that PSO defaulted more than nine times during current financial year, sources added. It was also decided in the meeting that there would be two sets of prices for FO - one for credit customers and the other for cash customers.
The additional cost element has been built into the pricing mechanism for credit customers taking into account the backlog of outstanding late payments and interest owed by the power sector as well as the continued trend of delayed payments by them. The delays in payment have resulted in serious losses to PSO as well as badly affected its profitability and liquidity situation.
This additional cost element is just a recovery mechanism and is in line with the contractual obligations of the power plants as well as the directives of the GoP. However, IPPs are reluctant to adopt this mechanism as their power purchase agreement does not allow this and they fear that NTDC will not accept the invoice based on this pricing mechanism. Therefore, NTDC and Nepra should be advised by concerned ministries to allow the additional credit cost as part of fuel cost component (FCC) so that IPPs could pass on these to the power purchaser. Otherwise, this huge outstanding balance will keep on rising and would become a drag on power sector. Further, Hubco and Kapco are deducting 20 percent from the amounts allocated to PSO by MoF/Pepco. Nearly Rs 14 billion has been deducted since July 2012 till date. These two factors are also contributing to PSO's financial woes.