ISLAMABAD: The government released on Friday Rs15 billion of the Rs30 billion allocated for smaller Independent Power Producers (IPPs) and gas suppliers to ease their financial crisis caused by the energy sector circular debt.

A threat by the Independent Power Producers Advisory Council (IPPAC) to take up the issue of non-payment ‘at the highest legal forum’ led to an agreement with the government to pay Rs30 billion to smaller IPPs in two instalments.

The government will release the remaining amount of Rs15 billion in a few days to enable the IPPs to make payments to procure furnace oil for power generation.

The IPPAC had objected to what it called a ‘discriminatory’ disbursement of funds by the government and said that IPPs were being unfairly treated.

Abdullah Yousuf of the IPPAC recently informed the government that total receivables of IPPs are exceeding a staggering figure of Rs175 billion.

The situation, he said, had become unbearable and its continuation would result in curtailed production or no production with adverse effects on economy and increase in loadshedding.

The IPPAC said the Pakistan Electric Power Company (Pepco) was unable to make payments IPPs and GENCOs.

The overall payables of Pepco are more than Rs288 billion, of which Rs182 billion or 63 per cent is to be paid to the IPPs.

The resolution of the circular debt issue is necessary to ease supply constraints.

The funds released by the government will be disbursed among four gas companies, Mari Gas, Pakistan Petroleum Limited, Sui Northern and Sui Southern, and 14 IPPs, including AES, Fauji, Liberty, Uch, Chashma, Attock Gen, Nishat Chunian, Nishat Power, Atlas, Engro and Orient power.

The IPPs have asked the government to put in place a mechanism under which funds made available for payment of overdue amounts should be disbursed in an equitable and transparent manner.

Mr Yousuf said that two larger IPPs, Hubco and Kapco, had major outstanding amounts of Rs70 billion and Rs52 billion, respectively, accounting for 68 per cent of the total overdues of IPPs although their dependable capacity was around 33 per cent (2,586 MW) and the government should raise Rs150 billion through bonds, term finance certificates and sukuks to clear the dues.

The smaller IPPs, he said, accounted for 32 per cent of receivables (Rs60 billion) although their dependable capacity was much higher at around 67 per cent (4,700 MW). Payments should be made to them through a transparent mechanism.

Under the proposed mechanism, the payment should be made to IPPs with overdue amounts exceeding 45 days for plants based on furnace oil and 60 days for those based on gas.