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September 27, 2020

‘Debts of IPPs need to be restructured for 10-20 years’

Business

September 27, 2020

KARACHI: Debt of independent power producers (IPPs) should be restructured for 10 to 20 years to financially support them to improve performance of the energy sector, an industry’s official said.

Ahsan Zafar Syed, chief executive officer of Engro Energy, proposed that debt of IPPs should be restructured, followed by ensuring competitive bidding for all future projects.

“The performance of Pakistan’s energy sector is impacted by several challenges including rising circular debt, excess capacity, low demand, high cost of electricity, and foreign exchange drain,” Syed said speaking at a power sector’s webinar. The session was organised by the Corporate Pakistan Group.

Engro Energy chief said the issues could be resolved by improving the efficiency of distribution companies (discos), proper and independent power-planning, along with shifting industrial captive power generation to the grid and taking measures to increase industrialization and stimulate growth in electricity demand.

Circular debt increased to Rs2.2 trillion in June this year from Rs1.2 trillion in June 2018. If disco operations are not improved, the inefficiencies will add an additional Rs1.5 trillion to the stock, taking the total circular-debt to approximately Rs4 trillion by 2025.

Fiaz Chaudhry, director of LUMS Energy Institute said lack of sustainable policies is the real reason behind the poor energy-sector performance in Pakistan.

“We must optimise planning to ensure more reliability of power supply, reduce system peak demand, and invest more to expand the transmission and distribution infrastructure and generation capacity, while also reducing excessive technical losses,” said Chaudhry.

Aftab Mahmood Butt, managing director of Kot Addu Power Company said deflated demand for power had been keeping the economy depressed, whereby the electricity demand to GDP growth has also lagged behind, causing excess capacity.

The webinar proposed Pakistan must use more of its indigenous resources and renewable energy to diversify its energy-mix and reduce foreign exchange drain. The possibility of using Thar coal, blended with imported coal, must also be evaluated to increase indigenisation.

Moreover, all future capacity additions should also be based exclusively on indigenous fuel and renewable energy, according to the webinar.