Government to Pay Over Rs 400 Billion to IPPs

Pakistan Tehreek-e-Insaf (PTI) government has finally decided to pay more than Rs 400 billion under circular debt to the Independent Power Producers (IPPs) to weigh off its shoulders.

The volume of the circular debt has surged to Rs 2,440 billion during two years of PTI’s regime.

Therefore, to settle the issue, the PTI government would initially clear Rs 403 billion to 46 of 47 IPPs in installments.

In the first phase, the government would pay Rs 161 billion or 40% of the amount to IPPs while the remaining 60% would be paid in the next six months.

The government will pay Rs 100 billion to Kot Addu Power Company, Rs 75 billion to Hubco Power Company, and Rs 60 billion to Mansha Power Group.

Some 43 other IPPs will be paid a sum up to Rs 22 billion. The government is yet to reach an agreement with a Turkish Company Zarlu Energy regarding its share in outstanding debt.

Why the agreement was essential?

The rift between the IPPs and government on the debt issue had intensified in August last year.

The power producers had threatened the government of approaching the International Court Justice (ICJ).

Hence, the government had the deadline of February 11, 2021, to carve a way for repayment of debt after it had signed a memorandum of understanding (MoU) with IPPs in the same month.

What would be the mode of payment?

The government will pay Rs 161 billion, 40% of Rs 403 billion, immediately.

The distribution of payment has been done such that Rs 54 billion will be paid as cash while Pakistan Investment Bonds (PIBs) worth Rs53 billion will be issued by the government.

For the remaining Rs 54 billion, the government will roll out Sukuk bonds for the five-year period. These bonds will also yield profit.

Some Rs 242 billion or 60% outstanding amount will be paid off in the next six months.

How would it benefit the government?

The federal government claims that it would be able to save Rs. 836 billion over the next 15 years.

Regarding it, a member of the Economic Coordination Committee (ECC) told News360 that had the government not signed a pact with IPPs as per the current dollar-rupee exchange rate and interest rate, it would have to face extreme difficulties in the future.

Therefore, he said that the move taken now would help the government save Rs 836 billion over the next 15 years.

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Some Rs 242 billion or 60% outstanding will be compensated in the next six months.

The distribution of payment will be done such that one-third of it, Rs 81 billion will be paid in cash, and PIBs worth Rs 80 billion will be issued.

For the remaining Rs 80 billion, the government will issue Sukuk Bonds for 10-year-term.