KARACHI: Port Qasim Electric Power Company Ltd (PQEPC), which runs a $1.9 billion power plant of 1,320 megawatts on imported coal, has served a formal notice of payment default on the Central Power Purchasing Agency (CPPA).
The total verified due amount that the state-backed, sole electricity purchaser owes the independent power producer (IPP) amounted to Rs77.3bn or $263.5 million as of May 15, according to PQEPC CEO Guo Guangling.
Owned by China’s Sinohydro Resources Ltd and Qatar’s Al Mirqab Capital Ltd, the IPP was part of the early-harvest phase of the China-Pakistan Economic Corridor (CPEC).
Its power purchase agreement states that a failure to pay an undisputed amount by the CPPA within 35 days of the notice will constitute the power purchaser event of default.
Non-payment will trigger ‘power purchaser event of default’ in 35 days
The IPP has demanded that the power purchaser must make a principal payment of $73.6m before May 31 to avoid a “facility agreement default” as well as a Government of Pakistan or “GoP default”.
“Unlike the hydro, wind and solar power projects, the company, as (an) imported coal power project, requires a constant and large amount of cash flow to purchase coal and clear overdue amounts with coal suppliers for sustainable operations,” said Mr Guo.
Separately, Engro Powergen Thar Ltd, which operates a $995.4m power plant of 660MW on local coal, has told the CPPA it may shut down operations entirely because of a “severe liquidity crunch” that’s made it challenging for the IPP to settle its liabilities with both lenders and suppliers.
Its outstanding receivables from the power purchaser amount to Rs65.5bn. The IPP has demanded the CPPA pay it Rs28.7bn before May 31 to help it avert a default on debt servicing.
Disbursement formula
Lucky Electric Power Company Ltd, which runs a $1bn a coal-fired 660MW plant, has demanded the government should change the formula for allocating payments to IPPs, which is currently based on overdue amounts and doesn’t prioritise energy and debt servicing requirements of electricity generators.
In other words, the current practice ensures that the CPPA disburses payments, including subsidies, among all power plants, which include even those that have remained idle due to their high unit costs.
As a result, old IPPs that have already repaid their debts and currently bill only capacity payments for their return on equity (RoE) and fixed operation and maintenance (O&M) components receive disproportionately higher payments.
In contrast, newer plants on cheaper fuels that are regularly despatched end up spending most of the payments received from the CPPA on their fuel suppliers and O&M contractors.
In a recent letter to the power purchaser, the IPP demanded that the existing allocation formula be amended to incorporate a waterfall mechanism i.e. a method that makes due payment in order of priority, albeit with exceptions and qualifications.
It demanded that the CPPA prioritise the energy and debt components in its payments while the remainder be paid to all IPPs based on their over-dues. “This will help in ensuring sustainable plant operations of the IPPs on top of the merit order and avoid any disruption in fuel supplies and also honour debt servicing payments.”
Finance Minister Ishaq Dar and Energy Minister Khurram Dastgir Khan didn’t respond to requests for comment.
