KARACHI: Federal Minister for Information Shibli Faraz said on Tuesday Pakistan would save Rs836 billion ($5.22 billion) after implementing renewed agreements with 46 Independent Power Producers (IPPs).
“The implementation of renewed agreements will enable the country to safe about Rs836 billion over a period of 20 years,” he said at a news conference in Islamabad after the meeting of the federal cabinet.
“The government will pay Rs436 billion to clear part of the outstanding dues including Rs122 billion in interest,” he continued, adding that “the implementation of agreements with the IPPs will reduce electricity tariff.”
Last year, the government negotiated with the IPPs and asked them to reduce their capacity charges. A memorandum of understanding was signed in August 2020 which led to the amended Power Purchase Agreements (PPAs).
On Monday, the Economic Coordination Committee (ECC) of the cabinet approved the report presented by the Implementation Committee on the agreed payment mechanism with the 46 IPPs to clear the outstanding dues as of November 30, 2020.
Under the agreements, 40 percent of the outstanding dues will be paid in cash, Pakistan Investment Bonds (PIBs), and in five-year Sukuk bonds. The rest of the 60 percent will be paid in six months, though the payment mechanism will remain the same.
Pakistan’s power sector dues — or circular debt — accumulated to about Rs2.3 trillion last year from Rs1.6 trillion in 2018 due to payment issues and power theft.
The government and the IPPs have agreed to discontinue the US dollar exchange rate and US CPI indexation on the project company equity and fix them on National Bank of Pakistan’s TT/OD selling PKR/USD exchange rate existing on August 21, 2020, and US CPI for the month of August 2020.
Until the current exchange rate reaches that of August 21, 2020, (Rs168.60/USD), the existing arrangement under the PPA for the current half year shall apply for future billing, according to HUBCO.
Some analysts say the agreements are still in favor of the IPPs, though it addresses some structural flaws that would not only improve cash flows of the companies but also help the government save a significant amount of money.
“The agreements made in 1994 and 2000 have been revised to address the structural flaws, such as payments to the companies that had to be made in US dollars even if the power produced by them was not utilized,” Muzzamil Aslam, CEO of Tangent Capital Advisory, told Arab News.
“Due to the lack of timely payment,” he added, “the cash flow of these companies also suffered, and their intrinsic value was undermined. This issue has now been addressed as well.”
Under the new agreements, all parties have agreed to resolve outstanding disputes through arbitration under the PPA.
