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April 18, 2021

Pakistan to rein in $14bln govt owes to energy firms

Business

April 18, 2021

ISLAMABAD: Pakistan is finalizing a plan to address about 2.2 trillion rupees ($14.4 billion) of debt the government owes to the energy sector, a liability that’s doubled in the past two years as power purchases outstripped demand, Bloomberg reported.

Islamabad aims to pay 400 billion rupees in late fees to several electricity producers by June in a deal to cut power costs, and will ask banks to restructure the remaining debt, according to Tabish Gauhar, special assistant to Prime Minister Imran Khan for the energy sector. The government had previously pledged to make these payments by February.

The government buys nearly all of the electricity produced in Pakistan, and a robust build-out of power plants has outpaced demand and forced the Khan administration to rack up massive debt.

Reducing energy sector liabilities is also of high importance since it is one of the International Monetary Fund’s conditions for providing Pakistan with a $6 billion bailout loan.

If nothing is done to address the runaway costs, Pakistan’s debt is slated to double to 4.5 trillion rupees by June 2023, Gauhar said.

Islamabad is looking at buying all of Pakistan’s private fuel oil-fired power plants, including Hub Power Co.’s facility, at a one-time cost that will help it save at least 300 billion rupees on payments over the next seven years, he said in an interview.

Pakistan will increase electricity tariffs for end-users, such as households and businesses, over the next few years, Gauhar said.

The government will, however, explore ways to boost efficiency and lower costs in order to ease the burden on consumers, he added.

Gauhar said he personally would support a plan where the Guddu and Nandipur power plants will settle overdue payments with fuel supplier Pakistan State Oil Co. by giving them equity in their facilities.

The energy ministry also aims to incentivize refineries to make $2 billion worth of upgrades by providing operators with duty protections, he said.

The policy, which will be announced before the annual budget for the fiscal year starting July, will help boost competitiveness, as many refineries in Pakistan produce a type of fuel oil that isn’t in demand anymore, Gauhar said.