LAHORE, May 5: The government’s failure to pay their dues of Rs34 billion to the eight independent power producers (IPPs), which had invoked sovereign guarantees, seems to have left them nearly high and dry.

At least two plants running on oil with a combined capacity of around 425 megawatts, the CEO of one of the IPPs told Dawn on condition of anonymity, had shut down on Saturday, a day after the government defaulted on its contractual obligation, due to lack of cash to purchase oil.

“The others will close down over the next few days,” he claimed.

“The closed IPPs will not start generation unless the government pays them their dues because they do not have money to purchase fuel for their plants.”

In response to a question, the CEO said the heads of the eight IPPs were going to hold a crucial meeting on Monday to discuss their future course of action and decide their strategy to deal with the new situation arising from the government’s failure to fulfil its legal commitment.

“It is quite disappointing that the government is not taking the issue of sovereign guarantee seriously. Its ministers and officials concerned have not said even a single word so far as to what the government plans to do to honour its commitment and make our payments,” he said.

He insisted default on sovereign guarantees was not a trivial issue, but stopped short of threatening to use the “option of raising the issue in courts outside Pakistan” available to the affected IPPs.

“Taking legal recourse outside Pakistan will have adverse repercussions for the country. A case outside Pakistan against this sovereign default will immediately result in severe reaction by the global financial sector. The banks will stop honouring trade documents from the Pakistani banks and insist of cash payments. The foreign interests in these IPPs could even go to the extent of attaching the properties owned by the Pakistan government in other countries,” the CEO said.

The IPPs say the sovereign default has jeopardised their investment amounting to Rs200 billion. In all, the IPPs say the government owes them a total of Rs69 billion Rs44 billion to the four power plants running on oil and Rs25 billion to those operating on gas for electricity produced by them since October. Out of this, they say, an amount of Rs52 billion is overdue for more than 60 days.

The non-payment of their dues over the next few days could force these power producers to default on their project loans of over $1.6 billion.