IPPs start receiving circular debt payments

KAPCO received Rs 39.602bn from the power purchaser in the form of one-third cash, one third government Ijara Sukuk, and one-Third Pakistan Investment Bonds

KARACHI: Kot Addu Power Power Limited (KAPCO) announced on Monday that it has received Rs 39.602 billion from the power purchaser in the form of one-third cash, one third government Ijara Sukuk, and one-Third Pakistan Investment Bonds.

Government has completed the first payment transaction i.e. 40% of receivables to 20 Independent Power Producers (IPPs), amounting to Rs 89.8 billion which is equally divided in cash, 5-year Sukuk and 10-year PIBs. These IPPs fall under the pre-1994, 1994 and renewable energy projects policies.

This constitutes the first installment of 40 per cent of receivable at the cut-off date of November 30,2020.

Major chunk of Rs 62.8 billion (70% of total) went to power plants under pre-1994 policy (HUBC and KAPCO) followed by Rs 22.8bn (25% of total) to power plants under 1994 policy (Rousch, Fauji, PKGP, LPL, KEL and Saba) and Rs 4.1bn (5% of total) to renewable energy plants (FFC Energy, Act Wind, Artistic Solar, Harappa Solar, AJ Power, Rahim yar Khan Mills, JDW Sugar I & II, Hamza Sugar, Thal Industries, Almoiz and Chanar Energy).

The analyst of Topline Securities believes these companies will divert 40% of the amount received in retiring (1) trade payables (PSO being their fuel supplier) and (2) short term borrowings, while the remaining amount (receivable minus payables) will likely be disbursed to shareholders.

That said, KAPCO, PKGP and LPL, may announce one time cash dividend of Rs 18/share, Rs 10/share and Rs 4/share, respectively amongst the listed IPPs.

However, payment to 12 IPPs that falls under the 2002 power policy is withheld till the conclusion of National Accountability Bureau (NAB) investigation.

Impact of these payments on E&Ps (OGDC and PPL) is likely to remain Neutral as E&Ps as most of their cash flows are affected by gas sector circular debt, the analyst said.

PSO’s has major receivables of around Rs 23 billion from HUBCO, he said adding that PSO to get around Rs 9 billion assuming 40% payment of the overdue payables which is around Rs 20/share. This payment will be used by PSO to clear its short term borrowings.

On August 2020, Government and IPPs (excluding those plants falling under Power Policy 2015), had signed MoUs whereby IPPs had agreed to lower their returns against clearance of their outstanding receivables.

Second installment of remaining 60%: Due to be paid after six months from the date of first installment in the same ratio.

As per the agreement, if Government fails to meet the deadline of payment in 30 working days, clause five of agreement will apply which says ‘’in the event of any default by the Power Purchaser (CCPA-G) under this amendment, the Company shall suspend giving tariff discount from the date of default; provided, however, if such default in not cured within a period of seventy days, the company shall have the right to terminate this amendment by seven days’ notice, with no rights and obligations of either party arising out of the termination of this Amendment.

The government has already missed its first deadline of 40% payment which was due on Mar 29, 2021 amid ongoing NAB inquiry.

Later on May 18, 2021, cabinet approved payment of Rs 89 billion as first installment of 40% to IPPs excluding those 12 IPPs that falls under the Power Policy 2002. The payment to these IPPs will be withheld till the conclusion of NAB investigation.

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