IPPs’ threat to invoke sovereign guarantees: Gilani urged to immediately release Rs11bn

Posted on June 20, 2011. Filed under: Energy crisis, IPPs |

With people having to brave an average of 10 hours of loadshedding daily, the ministry of water and power has requested Prime Minister Yousuf Raza Gilani to release Rs11 billion urgently to bring the power crisis under manageable levels and avoid international embarrassment.

A senior official told Dawn on Sunday the power ministry had forwarded on Saturday a summary to the finance ministry and the prime minister secretariat seeking an immediate release of Rs11 billion to get maximum number of independent power producers (IPPs) back into production and avoid encashment of sovereign guarantees.

Officials said that non-payment of dues to the IPPs was not a big issue but encashment of government guarantees could affect the country’s reputation at the international level at a time when it was launching about $500 million worth of international bonds against 10 per cent shares of its largest oil and gas producer – the Oil and Gas Development Company.

An official said that Water and Power Minister Syed Naveed Qamar had also talked to the prime minister and the finance minister for early resolution of the payment issue.

The power shortfall that was 4,000MW till recent days increased to about 5,500MW on Saturday due to some disruption at the Zamzama gas field. The supply from the gas field has partially resumed but it will take a couple of days to normalise full production from the power plants.

Non-payment of dues by power firms to oil companies, particularly the Pakistan State Oil, had resulted in short supply of fuel oil, they said.

A demand-supply gap of 500MW normally translates into the countrywide loadshedding of one hour. That means the current 5,500MW of shortfall is on an average causing about 11 hours of loadshedding. However, in an attempt to ensure maximum power supply to the industrial sector, influential localities and major cities, consumers living in far-flung and rural areas are subjected to lengthy shutdowns – at times exceeding 16 hours a day.

Officials said the power sec tor’s normal fuel requirement was about 28,000 tons but it was getting a maximum of 23,000 tons per day, due to capacity constraints at Karachi ports and short payments.

As a result of continuing technical defaults, at least four IPPs have started the legal and financial process to call sovereign guarantees of the government on inability of power companies to make payment against the electricity they have purchased.

Under the power purchase agreements, the government or its public sector entities have less than 10 days after the IPPs’ final notice to make payment or its sovereign guarantees are encashed by the banks. The deadline ends on Friday and the power ministry expects the release of Rs11 billion to the IPPs latest by Wednesday.

It is the second time in the country’s history that private power producers have invoked sovereign guarantees for recovering their dues, although non-payments have almost become a routine in the energy sector, owing to an ever-deepening circular debt crisis.



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