ISLAMABAD: The government has started working on the proposal to transfer its stakes in some power plants to the Pakistan State Oil (PSO) to partially settle down its circular debt that has swelled to Rs937 billion.
The proposal is not new, but the incumbent regime while toeing the line of the International Monetary Fund (IMF) has started working on it with more determination to adjust the receivables of almost Rs153 billion due from public sector powerhouses. More importantly, Sui Northern Gas Pipelines Limited is also required to pay Rs455 billion to PSO against the import of LNG in the country.
Finance Ministry in its letter to the Petroleum Division dated February 20, 2023 renewed the proposal under which the government wants to offload its equity in Nandipur Power Plant and Guddu Power Plant (GPP) to PSO. The proposed transaction would settle PSO claims against NPP and GPP in lieu of its receivables from the said entities.
However, PSO wants to have controlling interests of GEPCO (Gujranwala Electric Power Company) instead of the GPP. The letter asked for the rationale from the Petroleum Division behind the wish to have control of GEPCO instead of GPP.
The letter further tells that the proposed transaction structure of NPP suggests that the government shall carve out the power plant in a separate entity after clearing all its active and contingent liabilities. “The financial impact of clearing all active and contingent liabilities of NPP and GPP is not available for comparative evaluation of the proposal.”
The letter said that the summary; however, proposes the transfer of controlling interests of GEPCO instead of the GPP.
The PSO wants the transfer of controlling interest in NPP and GEPCO against its outstanding receivables from GENCOs/CPPA equivalent to the amount of the asset’s fair market value as mutually agreed between the parties with the following measures: (i) develop modalities of this transaction by carving-out NPP and GEPCO from its respective structure/ NPGCL/ GENCO/ PEPCO and park it under a Special Purpose Vehicle (SPV) / entity after clearing all active and contingent liabilities on the plant’s books; (ii) PSO will acquire the SPV / entity, containing the clean asset, at mutually agreed fair value under the receivable-equity swap arrangement.
As part of its strategy, PSO will create a “power vertical” and place the said SPV / entity in that vertical; and (iii) the legal modalities of the transaction shall be determined and structured in consultation with the legal advisors.
As regards the proposed acquisitions, PSO may also be allowed to sell 30 percent of the power produced under B2B arrangement, whereas the rest can be dispatched to the national grid. PSO intends to refurbish the asset subsequently to improve their efficiency and position them for the merchant market based on the proposed transaction structure and modalities for NPP and GEPCO.
The petroleum ministry official said that if the proposed option was implemented effectively, it would benefit both parties by reducing the circular debt receivables of PSO without any cash outflow.