Pakistan Energy Sukuk-II of Rs 200 billion: PD urged to expedite process of clearing IPPs' overdue amount

Independent Power Producers Association (IPPA) has urged Power Division to expedite Pakistan Energy Sukuk-II of Rs 200 billion to clear sizeable overdue amounts of IPPs which are on the verge of default, well informed sources told Business Recorder.
The overdue position of 21 IPPs as of the end of February 2020 stood at Rs 331 billion of which Capacity Payment Price (CPP) over due was Rs 135 billion. Average period for which the CPP remained unpaid was 14 months. Late Payment Interest (LPI) and other overdue stood at Rs 86 billion.
According to the IPPs, the LPI ageing is very precarious and the oldest overdue invoice in this head is almost 8 years old. IPPs have to pay interest on their working capital lines to banks on monthly and / or quarterly basis, whereas CPPA-G does not pay IPP's LPI invoices, which is akin to double jeopardy for IPPs in terms of cash flows and cost.
Despite repeated assurances by the Power Division and Secretary Power in various meetings, the overdue position has not improved and has in fact now deteriorated to point where survival of the entire sector is a real risk.
When last tranche of Energy Sukuk of Rs 200 billion was released in March 1, 2019, majority of the money was paid under the head of Energy Purchase Price (EPP) and thereby immediately paid to the fuel suppliers, such as PSO and other suppliers for fuel and IPPs were requested to build up the fuel stock in the best national interest due to escalating situation with India. IPPs agreed to this as discharge of their national duty and in the best interest of Pakistan.
At that time, IPPs were promised that the next tranche of Energy Sukuk of Rs 200 billion would be released very shortly and it would be allocated in Capacity Power Purchase (CPP) and LPI heads, however, to date that has not happened.
IPPs have now urged on the Power Division to allocate the entire amount i.e. Rs 200 billion in the head of LPI as per the commitment and promise made to the IPPs last year.
Furthermore, CPPA-G has been allocating payments based on an arbitrary cutoff of July 2017, whereby overdue prior to July 2017 are not considered when making payments.
"We strongly object and protest against this unjustified and illegal practice and urge that all the overdue amounts be taken into account when making payments," said Chairman IPPA, Khalid Mansoor, in his letter to Secretary Power Irfan Ali, copies of which have also been sent to other top decision makers including Prime Minister Advisor on Finance and Revenue, Dr Abdul Hafeez Shaikh.
IPPs have urged the Power Division that immediate and urgent actions are necessary to avert the serious looming crisis, seeking Secretary Power Division's interventions for release of payments to the IPPs and avoid imminent default by March end.
The sources said, Power Division which is currently under fire in the federal cabinet, apparently sponsored by one of the top bureaucrats at the Prime Minister Office, has now proposed amendments in the Sukuks rules in the light of recommendations of SECP and Auditor General of Pakistan.
The government is planning to issue second PES aimed at minimizing circular debt which according to Chairman Nepra is over Rs 1.9 trillion. When the issue of second PES came under discussion at a meeting in Finance Division, the representative of SECP while adding to the view of SBP stated that the government should promote capital market and this is an opportunity to do so.
"If competitive bidding would have been made, mutual fund, pension fund and other such funds would have been able to invest in these prized asses, i.e. PES," he said, arguing that if PHPL were to repeat the bidding process by calling multiple bids instead of a single bid for the whole amount, it may restrict the value of single bid to a certain amount," said one of the participants.
It was further proposed in the meeting that 80 per cent of the amount could be offered through competitive bidding and remaining 20 per cent can be offered on pro-rate basis.
Referring to the time constraints apprehensions of Finance Division, the SECP representative suggested to go for bridge financing for two months and to meanwhile complete the process.
The sources further stated that it was pointed out during the meeting that Mutual Fund Association of Pakistan (MUFAP) has raised their concerns about calling bids from banks from participation in PES-II . Banks have formed a consortium as they have the ability to underwrite or subscribe to the entire issue size of Rs 200 billion and have flatly refused to allocate any amount to mutual funds.
IPPs and Power Division have reached an agreement to resolve outstanding legal issues which will benefit the government to the tune of Rs 17 billion but its execution could not be possible until the issue of Rousch Power Project of Abdul Razak Dawood, Prime Minister on Commerce, Industries and Production and Investment is sorted out.
The federal cabinet had constituted a committee under chairmanship of Minister for Economic Affairs, Hammad Azhar to submit recommendations on its issue. However, the committee has not yet held a single meeting so far.