The government is working to resolve complexities surrounding the payment of Rs1,275 billion in loans from 18 commercial banks aimed at eliminating circular debt in the power sector, The News reported.
However, challenges have arisen regarding the non-revised power purchase agreements (PPAs) of Chinese Independent Power Producers (IPPs) under the CPEC initiative, which must also be addressed while disbursing payments to other IPPs that have agreed to revise their agreements.
The dues of the Chinese IPPs have accumulated to Rs48 billion, which the government must pay. However, this has raised concerns on how to balance payments among all IPPs, as the government has already completed the formalities and is finalising the methodology for these payments.
The government has already reduced the Return on Equity (ROE) for government power plants (GPPs) to 13%, based on the Pak Rupee, and capped the dollar value at Rs168. Additionally, capacity payments for these plants have been lowered to 35 percent, offering a relief of Re0.44 per unit.
As part of the efforts to manage circular debt, the government has terminated PPAs of five IPPs, revised contracts for eight bagasse-based power plants, and altered the PPAs of 14 other IPPs based on a “take and pay” mode. These changes have collectively resulted in a relief of Rs1.43 per unit, including Rs0.77 per unit from the termination of the five IPPs contracts.
Negotiations with 35 wind power plants (WPPs) are ongoing, with many agreeing to revise their contracts. However, WPPs financed by development financial institutions (DFIs) are resisting changes, citing the lack of agreement from Chinese IPPs as a key issue.
The total circular debt in the power sector stands at Rs2.381 trillion, and the government plans to reduce this by Rs1,275 billion through loans. The remaining debt will be reduced through revised PPAs, contract terminations, and other efficiency measures, leaving Rs300 billion to be addressed via improved management.
To facilitate this, commercial banks have provided a loan of Rs617 billion to the Central Power Purchase Agency (CPPA), to be repaid by electricity consumers over six years through a Debt Service Surcharge (DSS) of Rs3.23 per unit. This surcharge, already in place, will not be increased but will continue for an additional six years to cover the loan’s repayment.
The total loan in the power sector, including previous loans, now amounts to Rs1,275 billion, with no new burden on consumers beyond the existing DSS rate. The IMF’s removal of the 10 percent cap on the DSS surcharge will further help in offloading the debt.
