Karachi: Hub Power Company Limited (HUBCO) and Central Power Purchasing Agency Limited, a public sector power purchasing company, have reached an agreement on late payments, surcharge rates, and heat rate efficiency, HUBCO disclosed in a notice to the Pakistan Stock Exchange (PSX) today. Around 21 other power producers also agreed to the terms that opened way to end circular debt deadlock for energy and oil sector, sources said.
“It’s a very healthy development for major sectors of the economy,” Muzammil Aslam, CEO Tangent Capital Advisory said in a phone interview from Karachi today. “Eventually, all 53 power producers are expected to reach the agreement soon.” The ease in cash flow and removal of backlocks will also improve the ability of companies to plan improvements and expansions.
Pakistan, facing 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.
According to the notice, the payment of overdue receivables is an integral part of the agreement, and the payment mechanism of the company’s overdue receivables is in the process of being finalized, with instalments comprising cash and other financial instruments.
On payment of the said receivables, Late Payment Surcharge (LPS) on future invoices will be lowered to KIBOR + 2.0% for the first sixty (60) days and then shall revert to KIBOR + 4.5% as per the power purchase agreement, while ensuring that payments follow the agreement mandated FIFO payment principles for this rate to be effective. The rate shall be changed from the current rate of 15% in US dollars to 17% in Pakistani rupees, with no future US dollars indexation, and the US dollar equity shall be converted to Pakistani rupees using exchange rate rupees to US dollars of 148. However, the current indexation shall continue to be applied until the date the applicable exchange rate under the present Tariff reaches rupees to US dollars of 168.
Further, on full implementation of the Competitive Trading Arrangement, subject to mutual agreement between the parties, the plant will move to take & pay basis.