KARACHI: Independent Power Producers (IPPs) are in severe liquidity crisis owing to the alarming level of circular debt and default by power purchasers.

Wapda and National Transmission and Despatch Company (NTDC) currently owe over Rs230 billion to the IPPs against the overdue invoices for electricity purchased and received on the national grid.

Talking to newsmen on Thursday, Hubco Chief Executive Khalid Mansoor said that Wapda’s payment default has resulted in severe effects on the financial viability of the power plants and affected the sustainability of the operations. IPPs are on the verge of collapse, despite engaging their entire working capital resources.

Contrary to the Power Purchase Agreement, Wapda has released a meager sum or in some cases absolutely no payments to IPPs over the past few months.

As per NTDC, IPPs are at least 40 per cent more efficient. At present, they contribute more than 50pc of Pakistan’s energy supply.

“While generation companies (Gencos) are not able to maintain their rated capacities over time, IPPs are reliable in this respect since we have to maintain our capacities to get paid,” he claimed.

Khalid Mansoor said that country’s existing energy mix is neither sustainable nor affordable as approximately 40pc of power generation is dependent on imported residual fuel oil (RFO).

This results in higher cost of power generation, alarming levels of circular debt and high import bills draining country’s foreign reserves.

He said that it is imperative to curb our dependence on foreign oil and look towards investments in indigenous resources, like coal and hydro that can help build our local energy economy.

“Globally, the percentage of energy production through coal, out of the total energy mix, is approximately 41pc. However, for Pakistan this stands at a massive low of 0.1pc – a fact which is both alarming and comforting, alarming due to its low constitution and comforting in the fact that we can still make judicious investments today that will help us overcome this threat.”

Khalid Mansoor said Hubco has done maintenance of its two boilers out of four boilers at a cost of approximately $20 million whereas the other two boilers would also undergo maintenance in October and November this year.

He said Chinese investors are interested and excited about power projects in Pakistan. “We are currently negotiating with different potential investors and sharing our feasibility with them. The initial plan to have a 660MW coal-based power plant could be backed with another 660MW plant if investors are confident to invest further.

The company has signed an agreement to invest $20 million in Sindh Engro Coal Mining Company Limited (SECMC) for the development of Thar resources, subject to it fulfilling certain conditions which include achievement of financial close by the end of 2015.

Under this agreement, the company will also have a right to use the coal mined by SECMC and establish a mine mouth power project when the production capacity is scaled up.

Hubco is also working on developing an imported coal-based project of up to 660MW at its existing Hub site.

The coal-based Brownfield project at Hub is being developed on a fast-track basis. A team of professionals is working on the technical planning and RFPs for engineering, procurement and construction (EPC) contracts have been floated. The company expects to receive technical and commercial bids later this year.

Published in Dawn, August 29th, 2014