Karachi: The agreement between the government and independent power producers (IPPs) entered its final phase of resolution to a long dispute on late payments, which had created a negative impact on the financial flows of the entire energy and oil sector of the country. Kot Addu Power, the largest producer by capacity, and with the heaviest payment dues, announced the “Novation” of the agreement today.
“The Agreement and Novation Agreement require shareholders’ approval in general meeting to become effective,” Kot Addu Power Company Ltd. (KAPCO), said in a statement to the Pakistan Stock Exchange (PSX) today.
Pakistan, facing a power production deficit, has to rely on private power producers to bridge the gap between supply and demand. The country is also struggling to keep its cost of production for industries, such as textile, to compete in the export market. The agreement between the government and the power producer company with the largest capacity will clear the way for other companies’ managements and shareholders to follow.
On full implementation of the Competitive Trading Arrangement, subject to mutual agreement between the parties, the plant will move to take and pay basis. KAPCO announced an agreement on late payments, surcharge rates, and heat rate efficiency with Central Power Purchasing Agency Limited, a public sector power purchasing company. Almost all the power producers also agreed to the terms that opened a way to end the circular debt deadlock for the energy and oil sector.
According to the statements issued earlier, the payment of overdue receivables is an integral part of the agreement, and the payment mechanism of the company’s overdue receivables with installments comprises cash and other financial instruments.
The circular debt issue in Pakistan’s energy supply chain is simply a cash flow shortfall triggered in the power sector due to payment of dues by consumers, distribution companies, and the government itself. With its magnitude and its significant effects on other aspects of the economy, this issue can be termed as one of Pakistan’s front line macro-economic challenges, research analysts said.
According to a study by the World Bank, 66.7% of the businesses in Pakistan consider electricity shortages as a more significant obstacle to sustainability than corruption (11.7%) and crime/terrorism (5.5%).
On February 9, committees of the federal cabinet approved the payment of Rs 403 billion, in two installments, to 46 independent power producers as part of renegotiated agreements.
According to government data, the argest chunk of about Rs 100 billion will go to KAPCO, followed by about Rs 75 billion to Hubco Group and Rs 60 billion to Mansha Group.