IPPs

Four IPPs withdraw final notices on payment of Rs. 5 billion

Posted on June 22, 2011. Filed under: Energy crisis, Finance, IPPs, Pakistan, PEPCO |

ISLAMABAD, June 21: Four independent power producers (IPPs) decided on Tuesday to withdraw their final notices seeking encashment of sovereign guarantees after they were paid Rs5 billion and assured that the remaining dues will be cleared before June 30.

An agreement to that effect was reached after negotiations between Water and Power Minister Syed Naveed Qamar and a delegation of IPPs, led by Mian Mohammad Mansha and Yousaf H. Shirazi.

The IPPs — Nishat Power and Nishat Chunian of Mian Mansha, Atlas Power of Yousaf Shirazi and Liberty Tech — with a combined capacity of 880MW had issued the final notice on June 15 to call sovereign guarantees and stop production because of non-payment of dues against electricity they had supplied to Pakistan Electric Power Company (Pepco).

According to sources, the IPPs initially took a strong position not to withdraw the notices till the clearance of full payment, but agreed to oblige on upfront payment of Rs5 billion and commitment for the release of Rs3.25 billion before June 30.

The IPPs were told that their claim of about Rs10 billion also involved about Rs2 billion still-tobecome-overdue bills under contractual obligations.

The sources said the crisis had been averted after Prime Minister Yousuf Raza Gilani approved last week a power ministry’s summary seeking payment of Rs11 billion for the IPPs. The remaining amount of Rs2.75 billion will be paid to some other distressed IPPs.

An official was of the opinion that the notices had automatically become ‘infructuous’ after the partial payment of dues. But an IPP representative said that was not the case, adding that the IPPs would have to write formal letters to banks informing them about their decision not to go ahead with encashment. Otherwise, he added, the banks were bound under the law to pay the quoted amount on behalf of the government on June 23. He said withdrawal letters would reach the banks on Wednesday.

On Saturday, the power ministry wrote a letter to the prime minister and requested him to personally intervene for releasing Rs11 billion urgently to contain the crisis and avoid international embarrassment. Till May 15, the government owed about Rs122 billion to all IPPs.

Under its sovereign commitment, the government is bound to make payments to IPPs if their power purchaser, Pepco/Wapda, fails to clear dues. The failure to make payments by the government after a 30-day notice is technically considered as ‘sovereign default’ which leads to negative ramifications for the country’s credit ratings and interest costs.

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. In response to the notice, the NTDC/Pepco released about Rs6 billion, but delayed payment of the remaining amount because of financial problems.

Despite an estimated payment of about Rs296 billion in subsidy to Wapda/Pepco during the current financial year against a budgetary allocation of Rs84 billion, the entire power sector, including private companies, was facing serious financial problems because of continuous increase in outstanding dues, resulting in lower than required fuel purchases and compounding electricity shortfall.

The government has picked up more than Rs300 billion arrears from power companies’ balance sheets and parked the amount into a newly-created Power Holding Company and raised almost an equivalent amount from banks to improve the power sector’s cash flows.

The government paid Rs40 billion alone as interest against these loans out of the federal budget and the amount is expected to reach Rs56 billion during the next financial year.

Dawn.com

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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.

Dawn.com

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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.

Dawn.com

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Share sale offer: Pakgen Power Limited

Posted on June 15, 2011. Filed under: IPPs |

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IPPs defer decision for one day

Posted on June 15, 2011. Filed under: IPPs |

The four IPPs — Nishat Chunian, Nishat Power, Liberty and Atlas Power – have deferred their decision to call sovereign guarantees for one day on an assurance by the authorities that Rs10 billion outstanding against the National Transmission and Dispatch Company (NTDC) would be released by Wednesday.

The IPPs had earlier had decided to serve final notice to call the guarantee on Tuesday for recovery of their outstanding power dues.

“We have decided to defer the notice for one day as government has assured us of payment of our dues,” said a senior executive of one of the IPPs. He said the IPPs, having a combined capacity of producing 800MW, would call the sovereign guarantee on Wednesday if the government did not fulfil its commitment.

 

Dawn.com

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Payment of Rs10bn dues IPPs plan to invoke sovereign guarantees

Posted on June 14, 2011. Filed under: IPPs |

LAHORE, June 13: Four Independent Power Producers (IPPs) will on Tuesday (today) serve the final notice on the government for invoking sovereign guarantee for the recovery of outstanding power dues of over Rs10 billion.“We have decided to give the final notice for invoking sovereign guarantees in next 10 days,” a director of one of the IPPs told Dawn on Monday.

Requesting anonymity, he said nothing short of full payment of the dues could change their mind.

The IPPs, which gave the preliminary notice for invoking sovereign guarantees for the recovery of Rs16.50 billion on May 14, include Nishat Chunian, Nishat Power, Liberty and Atlas Power having a combined capacity of producing 800MW of electricity.

The director said the government had released Rs6 billion to the four IPPs ever since they had served the preliminary notice, but was delaying the payment of the remaining dues.

Industry sources told this reporter that the Pepco authorities had held a meeting with the management of these IPPs and explained to them the reasons for the delay in the payment of their power dues.

But the meeting failed to produce any result as the IPPs remained unconvinced. The Pepco officials were told that the delays in the payment of the power dues had created financial crunch for the IPPs that were facing difficulty in procuring fuel for running their plants, they said.

“We have exhausted our credit lines (to purchase fuel) and run the risk of closure,” the CEO) of another IPP, who also requested anonymity, said, “The government has long been ignoring our financial problems and its contractual obligations and has forced us to demand the sovereign guarantee to stay afloat.” According to the power industry sources, some IPPs are in a position to wait for actual payment because they are assured of fuel supply by the PSO or gas utilities on the instructions of the government. But others, established under the power policy of 2002, do not enjoy this facility.

The sources claim that the IPPs established in the 1990s receive monthly capacity charges in addition to uninterrupted fuel supplies.

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.

“In case the government does not honour its contractual obligations, it will be deemed to have defaulted on its sovereign guarantees leading to downward revision of its sovereign ratings,” the director said.

He said the cases of resolution of disputes and encashment of guarantees would be heard in foreign countries like United Kingdom or United States because almost all IPPs had component of foreign investments.

 

Dawn.com

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Non-payment of dues: four IPPs threaten to stop power production

Posted on June 14, 2011. Filed under: IPPs |

JUNE 13, 2011

SAFDAR RASHEED

Business Recorder Logo

The month-long notices, given to the Ministry of Water and Power, by four independent power producers (IPPs) for clearance of their outstanding dues amounting to Rs 16.43 billion, expire on Monday. The notices said that in case of non-clearance of the dues they would close down their thermal power producing units, Business Recorderhas learnt.

According to documents available with Business Recorder, the overdue amount of these four IPPs stood at Rs16.43 billion on May 13, 2011, when notices were served to the Ministry of Water and Power and Pepco. Out of the amount, Rs 3.583 billion dues belong to Atlas Power, Rs 3.719 to Liberty Power, Rs 4.628 to Nishat Chunian and Rs4.5 to Nishat Power.

These notices were served on or around May 13 by four IPPs, namely, Liberty Power, Atlas Power, Nishat Power and Nishat Chunian, informing the federal government that the power purchaser, a Pepco subsidiary, had failed to clear the dues within agreed period for power supplied to it. Since the government of Pakistan was the sovereign guarantor, they have invoked that guarantee.

In their letters they have furnished proof that they had approached the government after exhausting all legal avenues including serving the power purchaser with notices for release of overdue payments.

The notice given by Atlas Power Ltd says: “This is to notify that the National Transmission and Dispatch Company Limited Power Purchaser has failed to make payment to the company as required from it under the power purchase Agreement (PPA) dated September 6th 2007 executed between the Power Purchaser and Atlas Power Limited. Consequently, demand for payment in the form of notices under section 16.2 of the PPA have been served on the Power Purchaser with copies to the Government of Pakistan Private power and Infrastructure Board, as per the requirement s of Section 16.9 of the PPA . The same are enclosed herewith for reference.”

The notice further says: “Therefore, in accordance with section 1.5 of the Guarantee, you are hereby notified that Rupees three billion five hundred eighty three million seven hundred fifty seven thousand and six hundred ninety-nine only is due and payable by the Power Purchaser under the PPPA , as specified in detail in the enclosed notices”.

Maqsood A Basraa, the Chief Executive Officer of Atlas Power Limited had written and forwarded this letter to the Deputy Chairman,Planning Commission and Secretary Ministry of Water and Power.

Another letter written by Independent Power Producers Advisory Council to the Secretary Water and Power, which says:

“We are sorry to bring to your notice the discriminatory system in disbursement of funds released by Government as there is no transparency in the system of disbursement and hence inequitable treatment of IPPs. This situation creates resentment among the producers who are desperate and thinking to take up the issue at the highest legal forum which could help them out. This would be unfortunate extreme step if pursued.”

Independent economists have warned that suspension of power production by these four independent power producer will not only plunge the country into grave energy crisis but would also have enormous implication for the government in case of sovereign default by not responding to the notices of several IPPs.

“These notices are a serious matter and the government/Pepco should not take it lightly as non-compliance on these notices would be thefirst step towards sovereign default,” warned an expert. He said that after expiry of 30 days’ notice period (13 June 2011) the aggrieved power companies would give 10 days’ notice to the federal government for clearance of their dues.

“The matter of payment is now between the government of Pakistan and the IPPs, as the power purchaser has already defaulted” he said, adding that after this default these companies can invoke the sovereign guarantee. Global rating agencies factor the response time of the government in case a sovereign guarantee is invoked.

Another expert questioned the wisdom of delaying these other small payments at a time when the country is facing a wide gap between demand and supply of electricity.

Copyright Business Recorder, 2011

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