ISLAMABAD, Aug 21: Faced with a severe financial crisis, the Independent Power Producers (IPPs) have threatened to shut down their plants and call government’s sovereign guarantees unless their dues are cleared, raising fears of the worst ever loadshedding in the days ahead.

The outstanding dues owed by the government have risen to Rs120 billion and the IPPs have already reduced power generation by almost half of their capacity because of limited fuel supplies. The consumers suffer about five hours of daily loadshedding across the country.

The IPPs have told the government that they will be left with no option but to announce force majeure if their dues are not cleared by August 31. Force majeure clauses in the power purchase agreements allow the IPPs to declare technical default for inability to continue operations for reasons beyond their control. This leads to a situation where the investors could call government’s sovereign guarantees, having negative consequences in the international and domestic capital markets. “The default has already occurred technically and legally,” a representative of an IPP told Dawn.

A meeting held on Thursday between the IPPs and a government team led by Minister for Water and Power Raja Pervez Ashraf to resolve the crisis remained inconclusive because of severe financial difficulties faced by the government. Almost all the government representatives who attended the meeting declined to comment on the issue.

Sources told Dawn that not only the fuel supplier--Pakistan State Oil (PSO)--had reduced fuel supplies to the generation companies of the Water and Power Development Authority (Wapda) and IPPs but gas companies had also reduced gas supplies for power generation by more than 60 per cent. The gas utilities used to supply about 300 MMCFD (million cubic feet of gas per day) for power generation but have expressed their inability to provide more than 60 MMCFD of gas.

The PSO, which provides furnace oil and diesel to both Wapda and IPPs, too is in dire financial straits because of over Rs25 billion stuck with the public sector generation companies and IPPs, limiting its capacity to import fuel oils for power generation.

The sources said that total payables by the government to IPPs had gone up to Rs120 billion. Hub Power Company, the country’s largest private sector power producer, alone had over Rs35 billion outstanding against the government entities. As a result, the IPPs were unable to make payments to PSO for additional fuel supplies, the sources said.

The IPPs had told the government that not only the government was at default to ensure uninterrupted fuel supplies as required under the long-term fuel supply agreements but it was also failing to make payments for the power it had so far purchased from IPPs, the sources said.

As a consequence, the IPPs told the government team that they would be forced to call sovereign guarantees both on account of default on payments and fuel supplies. This could have adverse impact on Pakistan’s sovereign credit rating and resultantly increase its borrowing cost not only on future deals but also on its existing loans.

The sources said the government required about Rs500 million per day of additional funds to keep the existing power plants running. Already, the country’s electricity shortfall has increased to about 5,000MW because of about 60 per cent decline in overall thermal power production as total production from thermal plants stood at about 6,500MW against its total generation capacity of about 11,000MW. The power production from IPPs has declined from a maximum of 6,115MW to about 4,100MW, showing a shortfall of about 67 per cent. Likewise, the thermal power production from Wapda’s own plants also has reduced from 4,830MW to just 2,500MW.

The sources said Wapda’s financial crunch has worsened because of its inability to recover over Rs100 billion dues mostly from the public sector consumers and a delayed increase in consumer tariff. While the government has not been able to clear Wapda’s electricity bills, the distribution companies have issued disconnection notices to the public sector consumers.