IPP’s warn of impending power crisis due to forex shortfall 

ISLAMABAD: The country’s power sector is facing a potential crisis due to a shortage of foreign exchange, with Independent Power Producers (IPPs) warning of potential power plant shutdowns in the near future due to non-payment of approximately $710 million.

According to sources in the power sector, IPPs have sent letters to the federal government, expressing their concerns about outstanding payment issues and the risk of severe financial loss if these issues are not addressed.

Adding to the problems facing IPPs, their power engines require overhauls, and spare parts have not been delivered due to non-payment. As a result, the production of electricity has come to a halt, resulting in significant losses for the companies. IPPs have warned that non-payment through the State Bank of Pakistan is a breach of contract and that they will take strict action if the situation does not improve.

IPPs have requested the federal government to address their issues with the delay in dividend remittances to foreign shareholders, non-payment by banks to foreign suppliers against Letters of Credit (LCs), and the availability of foreign exchange through the State Bank of Pakistan.

As per sources, Atlas Power CEO, Razi ur Rehman, has written to the MD of Private Power and Infrastructure Board (PPIB) requesting urgent intervention, while Attock Gen Limited CFO, Adil Farooq Qureshi, has highlighted the GoP’s obligation to make foreign exchange available through the SBP.

Orient Power Company CEO, Kashif Bashir Rana, has requested that the matter be taken up with the State Bank of Pakistan to expedite the resolution of pending dividend payments, restore the confidence of foreign investors, and attract much-needed foreign investment to the country.

In response, the MD of PPIB has asked the State Bank of Pakistan to facilitate IPPs with their foreign payments to fulfill their contractual obligations and prevent potential breaches of commitments and obligations made under Implementation Agreements/Power Purchase Agreements, said the sources.

Available correspondence of IPPs with Managing Director (MD) of Private Power and Infrastructure Board (PPIB) disclosed that country’s power sector might face a worst crisis in the near future due to shortage of foreign exchange as power plants of IPPs are about to stop power production as overhauling of their power engines has been not made despite passing many days to the due date in this regard. And, in this regard the IPPs named as Attock Gen Limited, Atlas Power Limited, and Orient Power Company (Private) Limited have asked the federal government to take immediate notice of non-payment of $710 million as the situation has gone from bad to worse and IPPs have not been able to remit their profits abroad for the past ten months to their shareholders due to which IPPs are facing severe financial loss.

The IPPs, in its correspondence, has requested the federal government to resolve their problem arising out of delay in dividend remittances to foreign shareholders, non-payment by banks to foreign suppliers against Letters of Credit (LCs) etc. while due to non-arrival of spare parts, the production process of electricity is affected, and companies are suffering heavy losses.

The IPPs also declared that non-remittance of funds through State Bank of Pakistan is a breach of contract, and if the situation does not improve, IPPs will be forced to take strict action as per the agreement.

“This is of utmost importance now as without our imports being allowed, we will be forced to declare “Force Majeure” under our PPA,” said a letter written by Razi ur Rehaman, Chief Executive Officer (CEO) of Atlas Power to Shah Jahan Mirza, MD PPIB.

“Your intervention to resolve this serious matter is urgently sought”, reads a letter from the CEO of Atlas Power to MD PPIB.

Adil Farooq Qureshi, Chief Financial Officer, Attock Gen Limited, in a letter to MD PPIB, highlighted that the GoP (through PPIB) through the Implementation Agreement signed with the company is obligated to make foreign exchange available to the company through the SBP.

“We kindly request that PPIB play its due part in facilitating timely remittance of dividend and restoration of investor trust in local policies and institutions,” said a letter from CFO of Attock Gen Limited.

According to a letter of Kashif Bashir Rana, CEO, Orient Power Company (Private) Limited, in a letter dated 20th March 2023 to MD PPIB, before the management is directed by its foreign shareholders to invoke its rights under the IA for foreign currency availability, we request that this matter be taken up with SBP on priority for expeditious resolution and payment of pending dividend. This is critical to restore the confidence of the foreign investors and to attract foreign investment so desperately needed in the country today, said a letter of CEO, Orient Power Company (Private) Limited to MD PPIB.

 The MD PPIB in a letter dated 10th April 2023 to the Executive Director, Exchange Policy Department, State Bank of Pakistan (SBP) has request to facilitate IPPs for their foreign payments to fulfil their contractual obligations and also avoid the risk of creating serious financial and legal implications for the Government of Pakistan (GoP) and/or its representative entities for potential breach of commitments and obligations made under the Implementation Agreements (IAs)/Power Purchase Agreements (PPAs).

MD PPIB, in another letter to Executive Director, Financial Market and Reserve Management, SBP has requested that requisite payments applications submitted by Atlas Power Limited for foreign currency payments may be processed by banks at the earliest to avoid any serious implications and unnecessary litigation for the GoP.    

It is pertinent to mention here that the ongoing situation has put Pakistan’s power sector on the brink of a major crisis, and urgent measures are needed to address the concerns of IPPs and ensure the availability of foreign exchange for the smooth functioning of power plants.