LAHORE: As many as 15 independent power producers (IPPs) have started invoking their sovereign guarantees to recover their unpaid bills of more than Rs66 billion by serving final notice on the National Transmission and Despatch Company (NTDC) and the government.

Sources said that notices were served on Tuesday after the failure of the government to “pay off the debt in two weeks as promised by Water and Power Minister Khawaja Asif” in his meeting with IPP officials on May 29.

The producers that have served final notices include the IPPs established under the 1994 power policy – Lal Pir Power (Rs4.36bn), Pakgen Power (Rs4.17bn) and KEL Power (Rs2.22bn) – and the ones set up under the 2002 power policy – Liberty Power (Rs8.27bn), Nishat Power (Rs7.43bn), Attock Gen Power (Rs7.28bn), Atlas Power (Rs7.24bn), Nishat Chunian Power (Rs6.97bn), Hubco Narowal (Rs4.09bn), Saif Power (Rs3.41bn), Engro Power (Rs3bn), Sapphire Power (Rs2.50bn) and Orient Power (Rs1.15bn).

Rouch Power (Rs4.05bn) and Saba Power (Rs1m) have already initiated the process as a matter of routine under the power purchase agreements (PPAs) with the government.

This is the second time that IPPs have initiated process to revoke their sovereign guarantees for recovery of their unpaid bills, which is referred to as inter-corporate debt of power sector or more commonly as circular debt. If the government fails to pay off the debt in one month, the IPPs will have the right to get sovereign guarantees encashed under their PPAs.

In 2012, eight IPPs had initiated process for invoking sovereign guarantees. It led to a legal battle between power companies and the government and their outstanding bills were paid off partly under the court orders.

The Nawaz Sharif government had paid the inter-corporate debt of Rs480bn on the working day of financial year 2012/13, a month after returning to power with a pledge to never let the debt build up again. The payment of the debt had pushed the fiscal deficit for the previous year to 8.2 per cent of domestic output from the 6.5pc.

The debt re-emerged again and rose to around Rs300bn despite a hefty increase in electricity prices for domestic, industrial and commercial consumers.

Finance Minister Ishaq Dar has refused to fund this debt to contain the fiscal deficit for the present year to 5.7pc to perhaps meet the most crucial condition of the $6.7bn loan from the International Monetary Fund (IMF).

According to the sources, the government had to pay Rs141bn to IPPs set up under the 1994 power policy and Rs59bn to the IPPs established under the 2002 policy. The unpaid bills of GENCOs, etc., stood at Rs98bn.

Published in Dawn, June 19th, 2014