Four independent power producers (IPPs) decided on Tuesday to withdraw their final notices of sovereign guarantees after they were paid Rs5 billion and assured that the remaining dues will be cleared before June 30.
An agreement to that effect was reached after negotiations between Water and Power Minister Syed Naveed Qamar and a delegation of IPPs, led by Mian Mohammad Mansha and Yousaf H. Shirazi.
The IPPs — Nishat Power and Nishat Chunian of Mian Mansha, Atlas Power of Yousaf Shirazi and Liberty Tech — with a combined capacity of 880 MW had earlier issued the final notice on 15th June to seek encashment of sovereign guarantees and to stop production because of non-payment of thier outstanding dues by Pakistan Electric Power Company (Pepco).
According to sources, the IPPs initially took a strong position not to withdraw the notices till the clearance of full payment, but agreed to oblige on upfront payment of Rs5 bn and commitment for the release of another amount of Rs3.25 bn by 30th June .
The IPPs were said that their claim of about Rs10 billion also involved about Rs2 billion still-to-become-overdue bills under contractual obligations.
The sources told that the crisis had been averted after PM Yousuf Raza Gilani approved last week a power ministry’s summary seeking payment of Rs11 billion for the IPPs. The remaining amount of Rs2.75 billion will be paid to some other distressed IPPs.
An official is of the opinion that the notices had automatically become ‘infructuous’ after the partial payment of dues. But an IPP representative differed with and claimed that that was not the case, adding further that the IPPs would have to write formal letters to banks informing them about their decision not to go ahead with encashment.
Otherwise, he added, the banks were bound under the law to pay the quoted amount on behalf of the government on June 23. He told that withdrawal letters would reach the banks on Wednesday.
The power ministry earlier wrote a letter to the prime minister and requested him to personally intervene for releasing Rs11 billion urgently to contain the crisis and avoid international embarrassment. Till May 15, the government owed about Rs122 billion to all IPPs.
Due to sovereign commitment, the govt is bound to make payments to IPPs if their power purchaser, Pepco/Wapda, fails to clear dues. The failure to make payments by the govt after a 30 day notice is technically considered as ‘sovereign default’ which leads to negative ramifications for the country’s credit ratings and interest costs.
