The Pakistan Electric Power Company (Pepco) has stopped payment to nine independent power producers (IPPs) in anger against their decision to issue sovereign guarantee notices to the government of Pakistan (GoP).
The nine IPPs, which served notices, include Atlas Power, Attock Gen, Liberty Power Tech, Nishat Chunian Power, Orient Power, Nishat Power, Sapphire Electric Company, Halmore Power and Saif Power. The 30-day notice period will end on September 25, 2011.
"The IPPs have not received a single penny from the power purchaser from August 30, 2011, till today, which is discriminatory," said Chairman of IPPs Advisory Council while talking to a group of journalists.
According to him, daily billing of nine IPPs is about Rs 200 million, which implies a total outstanding of Rs 2 billion for the last ten days.
The government's non-seriousness can be gauged from the fact that the Prime Minister did not chair a scheduled meeting on this issue on September 8, 2011. The Minister for Water and Power, Naveed Qamar, is in his constituency and does not appear to be focused on resolving the toxic circular debt issue.
The government has injected Rs 1 trillion in the power sector during last three years on account of subsidy and line losses. Rs 190 billion will have to be spent in 2011-12 on subsidy as against the budgeted amount of Rs 81 billion.
Replying to a question Abdullah Yusuf, a former Secretary, Petroleum, said that the percentage of power generation from gas is considerably less than before, compelling the IPPs to use diesel, instead, to avert default on capacity payment, which is $ 160,000 per day.
The Pepco has withheld normal daily payments for the past 10 days, which is almost 50 percent of the daily fuel cost.
"Definitely, it's a deliberate attempt on the part of the government to stop payment to those IPPs which dared to serve sovereign guarantee notices to the GoP, which is a discrimination, as other IPPs, established under Power Policy 1994, are receiving normal daily payments from Pepco," Yusuf added.
He said that all credit limits of 9 IPPs have been exhausted and now banks have refused to extend credit line further.
Banks maintain that their exposure in the power sector has already reached 30 percent of total investment, and are refusing further exposure.
"IPPs are likely to default in September, like in June 2011," Yusuf stated.
Sources in the Ministry of Water and Power second the view of the Chairman of IPPs Advisory Council by maintaining that power generation is satisfactory these days due to increased hydel generation, which is why top policymakers are not in a hurry to resolve the IPPs issue.
Abdullah said that about one billion rupees are daily added to the circular debt which, according to the power sector analysts, cannot be managed until government transfers this amount to the books of NTDC and ensures payment to PSO and IPPs.
In case the Pepco does not pay to the IPPs, they would approach the courts, as per the Power Purchase Agreement (PPA), which according to Abdullah, had been badly negotiated by IPPs owned by local business houses at that time.
He said that Acting Managing Director N A Zuberi wrote several letters to the government for payment to IPPs, but no one is ready to pay heed to his requests.
IPPs payables are Rs 210 billion and the overdue amount varies from between two to nine months. Rs 130 billion was payable to Hubco and Kapco, whereas the outstanding amount of nine IPPs is about Rs 34 billion.