Cabinet approves payment of Rs403 billion to IPPs

The issue of Independent Power Producers (IPPs) has been in the news a lot in the last few days. At the time of writing this news item 46 IPPs including wind and solar projects have signed the final agreement of the government agreeing to the terms and conditions laid out.

In return the government has promised to expedite the payment to the IPPs in 2 instead of 3 installments. Now the Federal Cabinet has given final approval to the recommendations of the Cabinet Committee on Energy (CCoE) for payment of Rs403 billion to Independent Power Producers (IPPs).

According to the deal finalized with the IPPs only a third of the outstanding bills will be paid in cash. The remaining amount will be paid in 10-year bonds and five-year Sukkuk. Moreover, the termination of the PPA with Hubco’s least efficient base plant will save the government Rs240bn over the next seven years. Hubco will get a compensation of Rs65bn for agreeing to the premature termination of the agreement.

Shibli Faraz said out of Rs403 billion, Rs122 billion was interest payment, Rs72 billion payment of the PSO or other suppliers companies.“The breakdown of the remaining Rs1,300 billion is Rs700 billion of the IPPs and Rs600 billion of GENCOs,” added the minister.

The minister maintained that there would be saving of Rs836 billion over the next 20 years and tariffs of electricity would also be reduced after the agreement.

The government owed this money to the IPPs he said and added that the power sector circular debt has risen to over Rs2 trillion. Now Pakistan power producers’ rate of return has been converted in to rupee and foreign power producers’ rate of return on equity has been reduced from 17 percent to 15 percent.