KARACHI: The government has not approached independent power producers (IPPs) to renegotiate capacity payments, IPP Association Chairman Khalid Mansoor told Dawn on Thursday.

“We have not received any communication from the government,” said Mansoor, who also serves as the CEO of Hub Power, the largest private sector player in the electricity generation segment.

Each IPP signs a power purchase agreement (PPA) with the Central Power Purchasing Agency (CPPA), which is the sole buyer of electricity from bulk power generators.

PPAs allow the CPPA to calculate the revenue requirements of power producers partly based on capacity charges, which are the biggest contributor to the price of electricity. These amounted to Rs664 billion in 2018-19, up 60pc from a year ago.

“The government renegotiating PPAs can’t be ruled out. But these are signed and sealed contracts. We have given a lot of relaxations already in the national spirit. Yet they haven’t been able to obtain the formal approval for our last agreement,” he said, while referring to the settlement that nine IPPs reached with the Power Division last year under which they were to charge a markup of 2pc instead of 4.5pc in case of late payment for the first 60 days.

The settlement followed a 2017 ruling by the London Court of International Arbitration in favour of the same IPPs for the recovery of about Rs11bn unpaid capacity payments.

The IPPs have asked the government to set aside Rs200bn for the power sector to ensure uninterrupted supply of electricity amidst the Covid-19 outbreak.

The representative body of IPPs wants the government to make it available from the relief fund of Rs1.24 trillion that the prime minister unveiled last week.

“The power purchaser should get that money so that it can pay us on time. We’ll run out of liquidity if it stops paying us altogether,” said Mansoor.

The government has asked electricity distribution companies to go for partial recovery of bills as nationwide lockdowns weigh heavily on household budgets. IPPs fear that a slowdown in collection at the consumer level will cause a liquidity crunch in the sector and force the CPPA to withhold their payments.

“Our running finance lines are already choked. We won’t even be able to buy fuel. It will lead to another major crisis,” he added.

About 40 IPPs contribute 60pc of total electricity to the national grid. “The year-on-year drop in despatch from IPPs is currently between 20pc and 25pc, with peak demand hovering around 9,000 megawatts,” he said.

“It’s still cool in the northern parts of the country, which is another reason for the low consumption of electricity but it will surge April 15 onwards as summer sets in,” he said. It will hit a new high in three weeks as a significant number of mosques turn on air-conditioning in Ramazan, he added.

Second energy sukuk

Mansoor said the government is expected to invite bids for the second Pakistan Energy Sukuk worth Rs200bn by the end of this month. The industry expects that the liquidity raised through the Islamic bond will be used to reduce the outstanding capacity and interest payments.

Funds raised through the first Pakistan Energy Sukuk, issued in the middle of 2019, were diverted to top up fuel inventories as the country faced the threat of war after downing an Indian fighter plane.

Published in Dawn, April 3rd, 2020