Water and Power Ministry is reportedly giving preference to Pakistan State Oil (PSO) in payments to the Independent Power Producers (IPPs) which are facing default on payments to lenders, well-informed sources in PPIB told Business Recorder. All the IPPs are seeking support from concerned ministries for immediate payment of their outstanding so that they can run on full capacity.
IPPs maintain that the government had come to the doorsteps of the sponsors and had pleaded that the sponsors invest in power projects and had assured full payments without disputes under GoP sovereign guarantee which in the shape of an Implementation Agreement (IA) along with a separate guarantee on behalf of President of Pakistan. Saif Power Limited one of the aggrieved IPPs has sent a strongly worded letter to the finance minister, seeking his help to get due payment.
Saif Power, an IPP with a gross capacity of 225 MW supplying electricity to national grid under the 2002 Power Policy of GoP. This complex has the latest state of the art machinery from GE and Siemens and is also the most fuel efficient combined cycle power generation plant in the country with an efficiency of 51 percent on gas and 48.5 percent on HSD. The sponsors developed the IPP to provide cheap electricity for this country and it took a period of 6 years to complete the project.
Unfortunately, for last 20 months or so, payments from power purchaser, ie, NTDC are not forthcoming on due dates and company receivables have reached about Rs 7 billion out of which Rs 717 million has also been wrongly and unlawfully disputed. NTDC is our single and only customer and if NTDC does not pay, our company gets into deep trouble as is the case now for the last 15 months or so.
Implications of such non payment are as follows: (i) plant is not able to procure fuel and does not operate at its full capacity; (ii) the company is unable to service its debt to the syndicate of lenders. A default has already occurred for one quarter; another default is nearby and subsequent to which company may be reported in CIB with SBP. So far, sponsors had been giving additional loan to the company to sustain the debt servicing but now it has stopped as funds are exhausted; it cannot access indefinite funding without receiving anything back from the power purchaser; (iii) sponsors have not been able to receive a single rupee of dividend during 3 years of plant's commercial operations.
Sponsors have put up a substantial equity of $60m in this project with an objective to sustain group's operations through dividends of this company. As it is now, the entire group is facing cash crunch on account of such receivables in Saif Power. "It is perhaps for the first time in Pakistan's history that GoP failed to honour its sovereign guarantee," the sources quoted Saif Power as saying in a letter to the Finance Minister.
According to Chairman Saif Group, Javed Saifullah Khan, company's woes have been further compounded with recent damage to its turbines. As per reports of GE international laboratory, the turbines have been damaged due to frequent stops and starts by the power purchaser (sometimes 3 stops and starts during a day) combined with a low and fluctuating frequency on the national grid. These machines are very sensitive and were installed as base load machines but are being used as peaking units to the detriment of the sponsors and the country as this plant is also a national asset. This loss is estimated at $15m which company may recoup only partially due to high deductibles in its insurance policy; not only is P&L position bad but the cash crunch is extreme.
The company has sought Finance Minister's help for payment from the NTDC immediately so that the company can run its plant smoothly. The sources said frequent payments to PSO are key reasons for slow payments to IPPs but laments that remedial measures are not being taken by the concerned ministry.