Four IPPs close to bankruptcy, fear zero power generation

ISLAMABAD: Four independent power producers (IPPs), which are already facing liquidity problems because of the circular debt that has increased to Rs269 billion, find themselves in deep trouble because of an increase in the general sales tax on High Speed Diesel by up to 37 percent. The time when they would go bankrupt is not far, a senior official of the Ministry of Water and Power privy to the development told The News.
“The four gas-based IPPs — Halmore Power, Orient Power, Saif Power and Sapphire Electric — that have been running on High Speed Diesel for the last 18 months because gas is not being provided to them, are facing the brunt of another strange decision of the government.”
The official said the contracts of these IPPs allowed any new taxes on fuel to be passed on to the power purchasers. However, the National Transmission and Dispatch Company (NTDC) has refused to accept such invoices, unless the ECC approved the decision.
Meanwhile, Sales Tax Refunds of over Rs100 billion for the power industry alone, including theNTDC, are stuck with the FBR for many years and are not expected to be released anytime soon because of the shortfall in the FBR’s revenue collection targets. The result is that very soon these projects will not have the cash to procure HSD.
Effective from January 1, 2015, the government through the FBR raised the sales tax on HSD to 22% from 17% and then in subsequent days this rate was increased up to 37%. On the other hand, the rate of sales tax on electricity generated from diesel was retained at 17%, thus creating a cash gap of 20% for these IPPs. The government did not increase the sales tax on furnace oil by stating that furnace oil is being used for power generation while forgetting that HSD is also used for power generation.
When contacted, FBR Chairman Tariq Bajwa confirmed that the IPPs were facing the impact of an increase in the GST on High Speed Diesel. “I have asked the IPPs to take up this issue wth the Ministry of Water and Power as the ministry is the only body that can raise this issue in the ECC meeting.”
At present, the Ministry of Water & Power is in the process of drafting an ECC summary to allow theenforcement of the contract provisions allowing the increased sales tax rate on electricity to match the sales tax rate on HSD fuel. However, according to the IPPs, time is running out for them.