IPPs invoke sovereign guarantees for dues

Posted on June 16, 2011. Filed under: Energy crisis, IPPs |

LAHORE, June 15: The cash-starved government struggling to cope with the stifling inter-corporate circular debt crisis in the power sector received a fresh jolt on Wednesday when four independent power producers called sovereign guarantees for the recovery of their dues of over Rs10 billion outstanding against the NTDC/Pepco.

The IPPs delayed for one day their decision to give a final notice for invoking sovereign guarantee after Pepco authorities assured them on Tuesday that funds would be released in 24 hours.

It is the second time in the country’s history that private power producers have invoked sovereign guarantees for recovering their dues, the price of electricity sold to the NTDC/Pepco. Hubco, the country’s largest private power company, had decided to do so in 1998, but the matter was resolved after the government paid off the money.

Under its sovereign commitment with the four IPPs, Nishat Chunian, Nishat Power, Liberty Tech and Atlas Power, having a combined capacity of 800MW, the government is bound to make payment on behalf of the NTDC/Pepco within 10 days of receiving the final notice.

The failure will be deemed as ‘sovereign default’ and affect Pakistan’s international ratings. The companies can also stop production, adding to the growing electricity supply gap.

The IPPs served the first 30-day notice on the government on May 13 to start the process of calling sovereign guarantee for recovering their combined power dues of Rs16.5 billion (as of May 12). In response to the notice, the NTDC/Pepco released about Rs6 billion, but delayed payment of the remaining amount because of financial problems.

“We were constrained to invoke the sovereign guarantees because the NTDC/Pepco did not pay us our dues, leading to the exhaustion of our credit lines with banks and leaving us with no cash for purchasing furnace oil to run our plants,” a director of one of the IPPs told Dawn after serving the final notice on the government. Requesting anonymity in the interest of his business, he said the nonpayment of dues to the IPPs could result in disruption of fuel supplies and closure of their plants which would lead to imposition of heavy “liquidated damages” on them.

An IPP set up under the 2002 power policy is liable to pay liquidated damages to the NTDC/Pepco if it becomes unavailable for dispatch for any reason — even if it is closed down because of delay or non-payment of its dues by the buyer.

The IPPs have already requested the Private Power Infrastructure Board (PPIB) to review their contractual framework to exempt them from the liquidated damages if any of them is unavailable for dispatch because of delay in the payment of their dues by the NTDC/Pepco. The IPP director said the IPPs would not shut down their plants immediately because it would result in imposition of penalties. “But there is no guarantee that we will not shut down if the government fails to honour sovereign commitment with us within the stipulated period of 10 days.” He said that some IPPs could wait for payment because they had been assured of fuel supply by the PSO or gas utilities under their contracts with the government. But others established under the power policy of 2002 do not enjoy this facility.

“The IPPs established under the power policy of 2002 are neither given any capacity charges nor get uninterrupted fuel supplies. They are required to purchase fuel from their own resources and pay one month in advance,” he said.



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