ISLAMABAD: Following a government assurance to clear at least Rs50 billion by end of this month, the Independent Power Producers (IPPs) on Thursday announced to “temporarily suspend” the operation of the sovereign guarantee call notices.

About 10 IPPs had served formal notices to the government and the National Transmission and Dispatch Company (NTDC) to call Pakistan’s sovereign guarantees worth Rs26bn, owing allegedly to non-payment of Rs270bn worth of overdue audited bills by the power purchaser, NTDC.

Informed government sources said the IPPs took the decision after a meeting with top officials of the Ministry of Water and Power on Wednesday. These sources said Acting Secretary power Younas Dhaga assured the IPPs that the government was serious to address their grievances and gave a commitment to clear at least Rs50bn outstanding dues of the IPPs by end of this month.

Govt assures to clear at least Rs50bn before end of this month

These sources said the Mr Dhaga also gave an undertaking to the IPPs that all fixed outstanding dues as of Nov 30, 2014 would be cleared without any delay as per requirements of the power purchase agreement so that the IPPs could meet their cash flow needs and simultaneously reconcile bills relating to variable charges.

They were informed that the government would divert a sizeable amount from the privatisation proceeds to the IPPs and arrange credit financing on behalf of the public sector power companies to clear outstanding amounts in the circular debt that had again gone beyond Rs300bn.

It was, however, explained to the IPPs that a call on sovereign guarantee would not only cause irreparable reputational cost to the state but also affect credit rating and ultimately make it further difficult the task of fund raising from the banking sector.

The representatives of the IPPs agreed to suspend the operation of sovereign guarantee. They, however, explained to the government that they reserved the right to start the process of call on the sovereign guarantee after the end of this month if the promised amount was not cleared.

By suspending the operation of call on the sovereign guarantee, the “IPPs hope to provide the government with time enough to take appropriate measures and thereby avoid going into sovereign default,” said Chairman IPPs Advisory Committee Qasim Niaz, a former federal secretary, in a statement.

A representative of the IPPs also denied to have received Rs15bn from the government as stated by Power Minister Khwaja Asif a day earlier. He said the prime minister might have approved the amount but it had not yet reached the IPPs.

In an advertisement in the national press, a total of 25 IPPs had claimed audited overdue of Rs270bn. The advertisement said that seven IPPs had formally notified the government on Nov 26, 2014 that they were invoking sovereign guarantee due to continuing default by the NTDC on account of power purchased worth Rs26bn.

Another three had served similar notices for calling the GoP sovereign guarantee on Dec 1 and 2 for an amount of Rs14bn. This amount if not cleared by Dec 16, 2014 will result in a total sovereign default of Rs40bn, they said.

This is the second time over the last three years that IPPs resorted to the extreme step. Last year, the PML-N settled a Rs480bn circular debt and cleared dues to the IPPs to avoid sovereign default. The total receivables of the power companies have already gone beyond Rs500bn again in less than two years despite massive increase in electricity rates as the government and the power companies failed to contain system losses and improve recoveries.

Published in Dawn, December 12th, 2014