Circular debt balloons to Rs 2.3tr as govt fails to enforce revised contracts with IPPs

DailyTimes  |  Aug 01, 2021

There is no end to the vicious cycle of power sector’s circular debt. It is rather burgeoning and as of today, it has increased to more than Rs 2,300 billion, mainly due to the mismanagement, hidden interest and incompetence of the Power Division.

Sources within the Power Division told Daily Timesthat the dues of the IPPs are piling up on daily basis due to non-implementation of the revised contracts signed between the government and the independent power producers (IPPs) set up under the Power Generation Policy, 2002.

The implementation committee had concluded agreements with about 47 IPPs in February this year. At its recent meeting, the committee remained indecisive regarding payment of undisputed payables as ‘first installment’ to the IPPs in accordance with the revised power purchase agreement (PPA). This first installment had to be paid to the IPPs within 30 working days after the signing of the revised PPA.

The sources that the credit of the revised contracts with the IPPs was taken by Prime Minister Imran Khan on a number of occasions, but it is not being implemented due to bureaucratic hurdles and hidden vested interests.

It merits mentioning here that it is only after payment of first installment to the IPPs that the revised terms and conditions of the PPA will become effective and the nation will be able to save billions of rupees.

As per Power Division sources, the government has failed to accrue the benefit of lower tariff under the revised contracts. The IPPs continue to charge the higher tariffs as the payment of first installment of undisputed payables has yet not been made as promised to them. The source said that the IPPs are quite happy over the non-implementation of the revised contracts as they continue to draw higher rates as well as getting higher interest rate on old payables as per old contracts.

The sources said payables are increasing daily due to indecisiveness and hidden vested interests, as the government has also to pay late payment surcharge in addition to regular payment of higher tariff to IPPs of 2002.

The sources said that the indecisiveness of the implementation committee as well as of the power division to pay the first installment to the IPPs is beyongcomprehension as it will only bring the revised terms of the PPA into the implementation mode and reduce the flow of circular debt.They said the sword of National Accountability Bureau (NAB) is also not hanging over the division as the anti-graft body had appreciated the new arrangement with the IPPs after a meeting with the implementation committee.

The major revised terms include rupee-based return for local investor instead of dollar-based, foreign investors return reduced to 12% instead of 15%, share in all future savings of fuel and operation maintenance costs, reduction in interest rate from KIBOR + 4.5% to KIBOR + 2% for first 60 days and resolution of past excess payments approximately Rs 56 billion against 2002 Power Policy IPPs through Arbitration Panel whose decision will be binding for both the parties without going for further appeal in foreign/local courts.

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