LAHORE: Struggling to meet its budget deficit target of 3.8 per cent for the ongoing financial year, the cash-strapped government does not appear in a mood to pay back private power producers their bills (commonly known as ‘circular debt’) amounting to more than Rs250 billion — at least not anytime soon.

The recent correspondence between power companies and the Private Power Infrastructure Board (PPIB) shows that the government is turning up heat on the independent power producers (IPPs) for demanding payment of their overdue bills.

According to a letter sent to the 13 IPPs that had invoked sovereign guarantees on March 2 for the recovery of a portion of their long outstanding bills amounting to Rs48bn, the board has rejected their call. Besides, it has put them on a legal notice for running what it termed a false and malicious advertisement campaign against the government in newspapers.

The power producers claim that the government owes them Rs253bn as per its own record. The total size of the unpaid bills of the power sector is said to have shot up to Rs414bn if the dues of the public sector companies are also considered.

Power producers’ notices invoking sovereign guarantee for partial recovery rejected

The PPIB held a meeting with the power companies on March 10 after receiving notices invoking sovereign guarantees and assured the producers that the matter would be settled through talks. But something changed in the evening and the board sent letters rejecting the IPPs’ call for invoking sovereign guarantees. It also called off the second meeting with the industry at the last minute.

Explaining the reasons for rejection of the IPPs’ notices, the board said the power companies did not adhere to the procedure prescribed in the power purchase agreements for making such a demand.

“The purported demand under the Guarantee, among others, was neither made in the prescribed manner nor any prior written default notice for non-payment by the power purchaser of such claimed amount was served on the government,” the board wrote to the companies on March 10 and 18.

It has also taken exception to the IPPs’ resort to “extraneous” means to “malign the government and its entities through newspaper advertisements containing ill-founded, baseless, disparaging, malicious and false statements and insinuations” through the IPP Advisory Council.

“… the libellous publication contained in the advertisements has compromised efforts of the government to facilitate and boost local as well as foreign investment in the country, and publishing of such malicious advertisements is construed as serious attempt to distort the factual scenario and propagate a false and misleading perception of panic, unrest and distress within the industry as well as public at large to harm the national interests and amounts to creating civil unrest by alleging the sovereign default,” another letter sent to the power firms on March 18 stated. It went on: “… the contents of the advertisements have also scandalised sub judice matters before competent courts unlawfully and illegally against the settled legal norms”.

The letter threatened that the government might initiate legal proceedings (civil and criminal) against the power producers for running the “illegal and malicious advertisement campaign” unless they denounced the contents of the advertisements, tendered an unconditional written apology and refrained from any such libellous and disparaging statements”.

At a press conference on Tuesday, Minister of State for Water and Power Abid Sher Ali too threatened the IPPs that “the government will teach a lesson to the mafia for defaming it through advertisements in the print media”.

Simultaneously, the Central Power Purchasing Agency (CPPA) has “disputed” all the invoices raised by the IPPs, claiming that the companies were in default of their obligation of ‘maintaining fuel stock at full load operations for 30 days at all times’ under the power purchase agreements.

The CPPA alleges that the IPPs have been raising their monthly invoices and demanding full tariff without maintaining fuel stock of 30 days. Thus, it adds, the IPPs have unjustly enriched themselves by receiving excess payment/amounts on account of working capital (included in their tariffs) required for the fuel stock.

“… as a result of this the IPPs have received payments which were not legal and contractually due and payable to them, and as a consequence a wrongful call upon the government guarantee has been made owing to delay in (their) payments by the power purchaser,” argues a letter sent by the CPPA to the power producers.

It mentions an observation made by the auditor general (AG) that “the IPPs were benefiting from undue enrichment as a result of payments being made by the Power Purchaser without due consideration of applicable heat rate”. The AG had made this observation in a special audit report of payment of Rs480bn made by the government in June 2013 to clear the unpaid bills of power sector accumulated by its predecessor and start with a clean slate.

The CPPA also refers to the Public Accounts Committee (PAC)’s directive to the authorities concerned to conduct heat rate tests of all thermal IPPs to establish fair and equitable returns on (their) invoices in the light of the AG’s report. “In the absence of such tests you are earning over and above the guaranteed internal rate of return of 17pc, which is liable to be adjusted against the invoices claimed (by the power producers),” the CPPA letter tells the power producers.

The IPPs contend that the PPIB’s rejection of their demand under the sovereign guarantee was without any foundation as they had called the guarantees in accordance with the prescribed manner, and the board’s rejection of their notices shows the government’s mala fide intentions. “(The board’s) rejection letter has no legal relevance since our company fully complied with the prerequisites and requirements of the guarantee,” chief executive of an IPP told Dawn on Wednesday.

“They (the government) are now trying to intimidate us instead of paying back our money,” he said on condition of anonymity.

“We (IPPs) are preparing a comprehensive reply to the letters sent to us by the board. But the government cannot force private power producers to withdraw their notices invoking the sovereign guarantee. In fact, we intend to make fresh demands for payment of our bills. At least four power companies have already raised another, fresh demand of their unpaid bills estimated to be around Rs6bn under the guarantee. More notices will follow in the next few days.”

“The PPIB and CPPA correspondence shows that the government is using new coercive tactics in an attempt to further delay the payments of the IPPs under the sovereign guarantee,” the chief executive officer of another private power firm said. He added that the government had actually defaulted on its sovereign guarantee by delaying payments on the demand created by power firms under the agreement.

“We see a long drawn legal battle with the government on the issue: while it may drag us into courts on technicalities to delay our payment, we are taking the case to international arbitration for recovery of our money. The government has lost all previous cases in the international courts against power producers and the result in future is unlikely to be different.”

Published in Dawn, March 30th, 2017


For whom the clock ticks
Updated 22 Apr 2021

For whom the clock ticks

Tarin will have to succeed in order to cement his position within the cabinet.
Ending the ‘forever war’
Updated 21 Apr 2021

Ending the ‘forever war’

Regardless of who the adversary was at any point, two generations of Afghans have known only war.


22 Apr 2021

Capping power debt

THE suggested revision in the Circular Debt Management Plan, which aims to cap the flow or addition of new debt to...
22 Apr 2021

Istanbul postponement

WHILE the postponement of the Istanbul peace talks on Afghanistan, which were scheduled to be held later this week,...
22 Apr 2021

No mining precautions

YET another accident caused by a methane gas explosion has been reported from the dangerous coal mines of...
More mishandling
Updated 21 Apr 2021

More mishandling

By its bad decision-making and weak management, the govt has allowed the TLP to garner more importance and heft than it deserves.
21 Apr 2021

Declining FDI

THE sharp decline in FDI in recent months is worrisome. New State Bank data shows that FDI has plummeted by a hefty...
21 Apr 2021

The digital divide

IN the Economist Intelligence Unit’s annual Inclusive Internet Index report, measuring internet inclusion in terms...