KARACHI: Share prices of the independent power producers (IPPs) soared on Tuesday after the government approved the disbursement of Rs135 billion as part of the tariff renegotiation process aimed at reducing the circular debt.

The approval for the final tranche of payments consisting of 60 per cent of the total outstanding dues follows the disbursement of the first instalment amounting to Rs90bn to the same 20 IPPs back in May.

This will take the total payments under the Feb 28 tariff renegotiation agreement to Rs225bn. The disbursements are in the form of cash (33pc), sukuk (33pc) and floating Pakistan Investment Bonds or PIBs (33pc).

The share price of Kot Addu Power Company Ltd (Kapco) went up 7.49 per cent on a day-to-day basis to close at Rs30.44. The company is the biggest recipient of outstanding dues disbursed as part of lengthy renegotiations that resulted in reduced tariffs for private power generators.

A 1,638-megawatt power plant that runs on gas, furnace oil and diesel, Kapco will receive Rs59.4bn or Rs67.48 per share as the final instalment for the settlement of the circular debt in the power generation segment.

The second biggest beneficiary will be The Hub Power Company Ltd (Hubco). The 1,292MW furnace oil–based power generator will receive Rs34.8bn or 26.80 per share as the final instalment. Its share price increased 2.97pc to Rs75.30 on Tuesday.

Of the 20 IPPs receiving funds as part of the circular debt settlement, Kapco and Hubco are the only ones set up before the Private Power Policy of 1994. Six of them were established under that regime while 12 are projects of renewable energy based on wind, solar and bagasse.

Furnace-oil based Pakgen Power Ltd, Lalpir Power Ltd and K-Electric Ltd also saw their share prices increase 7.48pc, 4.77pc and 1.79pc, respectively, on Tuesday. Gas-based Altern Energy Ltd is an illiquid stock and has recorded no volume since Nov 8.

Shares of the remaining 14 IPPs that will receive their outstanding dues are not traded on the stock exchange.

According to a research note issued by Arif Habib Ltd, the resolution of the circular debt will be a key trigger for Pakistan State Oil Company Ltd (PSO) because it has to rely on short-term borrowings to meet its working capital requirement. PSO is the main supplier of furnace oil to Hubco.

“We expect PSO to receive 60pc payment from Hubco, which translates to Rs12.5bn against the total trade receivables from Hubco of Rs20.8bn,” it said.

The share price of PSO registered an increase of 2.12pc to Rs186.03 on Tuesday. “A reduction in the trade debt amount will improve the liquidity position of the company and allow it to invest in other projects, which will increase the wealth of shareholders.”

Published in Dawn, November 17th, 2021