Payment to IPPs: Government to disburse Rs200bn raised through Sukuk

The government has reportedly decided to disburse Rs 200 billion recently raised through Islamic Sukuk facility in the light of power sector inquiry report, which has already been rejected by the Independent Power Producers (IPPs).
Well-informed sources in the Finance Division told Business Recorder that the summary about disbursement mechanism/criteria was on the agenda of the ECC meeting held on May 21, 2020 but did not come under consideration due to paucity of time.
Sharing the details, sources said, Power Division submitted a summary to the ECC of the Cabinet seeking constitution of a committee to develop disbursement methodology for the Rs 200 billion raised through the Islamic Sukuk financing facility. The ECC on May 6 decided that Power Division will evolve a viable criterion for transparent disbursement of payments to power generation and resubmit for consideration.
In light of ECC's directions, Power Division has prepared the criteria to disburse Rs 200 billion in a transparent manner which stipulates that all IPPs will be paid in the manner that after disbursement of these funds the total payable to these IPPs remains equal or higher to the reported excess profits or systemic problems referred to in the committee report headed by Muhammad Ali. And after finalization/decision by the competent authority forum, the payables will be adjusted accordingly.
The sources said, Energy Purchase Price (EPP) inclusive of GST will be given preference, so that the fuel stocks remain at their highest level, and payments to RLNG and coal-fired plants will be given preference.
The sources maintained that capacity payments will be disbursed to meet the debt servicing and taxation requirements for the quarter ending June 2020.
Payments to Water and Power Development Authority (Wapda), Chashma Nuclear and partial settlement of import of power from Iran and NTDC transmission charges will be disbursed against capacity payments.
"These disbursements will strictly be followed for funds released for Rs 200 billion only," the sources continued.
As per the existing disbursement methodology, CPPA-G is maintaining the overall percentage based on billing and payment since July 2017 will continue to be followed for other disbursements.
The sources said, such IPPs where the percentage is higher due to disbursement of March 2020 debt servicing, will get a minor share to meet operational requirement from this allocation.
The ECC recently constituted a new four member technical committee to negotiate with IPPs on reduction in tariff headed by Babar Yaqub, Chairman Federal Land Commission, Joint Secretary Power(Member), Muhammad Ali, former Chairman SECP and author of first IPPs report which the government withdrew from CCoE and Barrister Qasim Wadood.
This implies that PPIB and CCPA-G, the two main entities of Power Division dealing with the power sector have been excluded from the new committee. It is however, still a mystery as to why the first technical committee headed by Special Assistant to Prime Minister on Power was dissolved. However insiders claim that the SAPM/head of first technical committee was criticized at a recent meeting of the CCoE after which the committee was dissolved.
Independent Power Producers, however, are of the view that none of the members have any background or experience in power sector.
"Quite surprising to note the name of Muhammad Ali who chaired the inquiry committee and completed the most controversial report. The fallout of the envisaged approach will be disastrous for future investment environment in the country," said a representative of IPPs.
Minister for Privatisation, Muhammadmian Soomro at a recent meeting of federal cabinet cautioned about concerns conveyed by the Financial Advisors to the Privatisation Commission for privatisation of power plants, and interested (credible) shortlisted companies, over the report on IPPs and subsequent adverse comments in the press. It was feared that uncertainty might adversely impact the pricing and timing of transactions and, therefore, all such needed to be clarified immediately.