ISLAMABAD: The government finds itself on a tightrope when it comes to making payments among IPPs the amount of Rs1,275 billion acquired through loans from 18 commercial banks to erase the circular debt in power sector once and for all, as Chinese IPPs installed under CPEC umbrella that have not agreed to revise their power purchase agreements (PPAs) cannot be ignored while making payments.
“This is the main issue that has cropped up for the authorities concerned as to how CPEC power plants are to be dealt with when the dues of IPPs that have come forward to get their PPAs revised are to be paid,” a senior official of the Power Division told The News.
“The dues of Chinese powerhouses installed under CPEC have increased to the whopping Rs48 billion that the Government of Pakistan is required to pay.”
“This situation has prompted the government to ponder more on the issue of payment disbursements of the amount among the IPPs and the methodology of payments may take some more days to get finalised. However, all formalities have been completed and there is no pending issue left to this effect.”
So far, the government has scaled down the Return on Equity (ROE) of government power plants (GPPs) to 13 percent based on Pak Rupee and capped the US dollar value at Rs168.
“More importantly, their capacity payments have reduced to 35 from 100 percent just to make sure the plants remain operational, this has resulted in relief of Re0.44 per unit.
“After the termination of power purchase agreements (PPAs) of 5 independent power plants (IPPs), delinking of the tariff 8 bagasse power plants from US dollar and connecting it to Pak Rupee and revision of contracts of ‘14 IPPs based on take and pay mode, so far the government has managed to get the relief of Rs1.43 per unit.”
“The termination of five IPPs contracts yielded a relief of Rs0.77 per unit, revision of contracts of 8 bagasse-based power plants Rs0.14 per unit, and the revised PPAs of 14 IPPs based on take and pay mode has provided relief in tariff of Rs0.43 per unit.”
The official said that there are 35 wind power plants in the country with which the negotiations are underway. However, there is a substantial progress as many of 35 WPPs have agreed to revise their contracts but the wind power plants established with financing from DFIs (development financial institutions) are showing resistance arguing that Chinese IPPs have not agreed to revise their contracts then why they should initiate talks for changes in their agreements.
The Circular debt of the Power Sector currently stands not more than Rs2.381 trillion. The said circular debt will be reduced by Rs1,275 billion through the loan and the remaining debt will be reduced because of the impact of the reduction in the discount rate, and gains through revised power purchase agreements with IPPs and termination of contracts with 6 IPPs. In the end, Rs300 billion would be left as part of circular debt which would be wiped out through efficient gains.
“Under the term sheet, the commercial banks provided a fresh loan of Rs617 billion at 10.50-11 percent mark-up rate based on KIBOR-0.90 basis points which will be paid in 6 years’ time by electricity consumers through Debt Service Surgery (DSS). “The consumers will pay Rs3.23 per unit in the bills as DSS. The commercial banks would detect the DSS amount at source at the time of paying the electricity bills by consumers. At source deduction on paying bills will improve the risk profile of the banks.”
“The commercial banks (CBs) are providing the loan of Rs617 billion to CPPA this time as IMF has allowed the banks to extend credit lines to the said state-owned entity.” The CBs will provide the loan of Rs617 billion for lending purpose with no government guarantee as the CPPA has a reasonable number of receivables.
The commercial banks earlier provided the power sector loan of Rs658 billion to the government which is parked in PHL (Power Holding Limited) PHL for a purpose of investment with a government sovereign guarantee. If the fresh loan of Rs617 billion is added, then total loan will hike to Rs1,275 billion.
The Debt Service Surcharge (DSS) of Rs3.23 per unit is already in place and electricity consumers are already paying it through the electricity bills, so there will be no new burden on consumers. However, the consumers under the latest scenario will continue to pay it for the next 6 years to offload the loan of Rs1,275 billion with interest the state-owned Central Power Purchase Agency (CPPA) has acquired from 18 commercial banks to erase the circular debt in power sector once for all, a senior official of the Power Division said who also remained part of the discussion with the banks for loan. He said the surcharge of Rs3.23 per unit is not the new one as it is already in place but it will now last for 6 years to pay the loan.
To a question, he said that the surcharge of Rs3.23 per unit has already reached 10 percent cap and the government does not intend to increase its cap. However, on the insistence of the IMF, the 10 percent cap has been removed as it was a structural benchmark.