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ECC 'approves' worth Rs100b payment to IPPs

11 Jan, 2022
The decision of the ECC dated January 5, 2021, would be ratified by the Federal Cabinet today (Jan 11). Photo: Twitter.com/finance ministry/File
The decision of the ECC dated January 5, 2021, would be ratified by the Federal Cabinet today (Jan 11). Photo: Twitter.com/finance ministry/File

The Economic Coordination Committee (ECC) has approved worth Rs100 billion for payment to IPPs, especially CPEC projects, of which Rs50 billion will be released against pending subsidy claims of previous fiscal years, and an equal amount would be issued as additional supplementary grant in the fourth quarter of the current fiscal year, well-informed sources told Business Recorder.

The decision of the ECC dated January 5, 2021, would be ratified by the federal cabinet today (Tuesday).

The power sector is currently facing a liquidity crisis, which has worsened due to rising fuel prices in the international market. In this scenario, credit lines of IPPs have been exhausted to procure fuel. Considering such a situation highlighted by various IPPs and fuel suppliers, Federal Minister for Finance convened a meeting on January 3, 2022, to find ways and means for early disbursement of funds to the power sector and its fuel suppliers, especially CPEC projects.

The Power Division presented a detailed position to Minister Finance with regards to outstanding payables to various IPPs including CPEC operational IPPs. The payable position as of December 31, 2021, for CPEC IPPs was Rs219 billion which is alarming and CPEC IPPs are pressing hard to maintain the fuel supply chain. It was further explained that a hike in fuel price requires immediate injections of cash flows to manage the liquidity needs of the power sector.

Out of Rs 219 billion, as of December 31, 2021, the balance amount of Apollo (solar) was Rs 3.121 billion, Best Green Energy (solar), Rs 1.654 billion, Crest Energy (solar), Rs 2.688 billion, Hydro China (wind) Rs 3.349 billion, Sachal Energy (wind) Rs 3.516 billion, UEP Power (wind) Rs 4.029 billion, Three Gorges Second (wind) Rs 2.082 billion, Three Gorges Third (wind) Rs 2.154 billion, Huaneng Shan dong Ruyi coal) Rs 70.464 billion, Port Qasim Electric Power (coal) Rs 59.199 billion, Engro Powergen Thar( coal), Rs 31.189 billion and China Power Hub Generation( coal) Rs 36.344 billion.

Considering pressing requirements of fuel suppliers, Finance Division proposed that Power Division may release Rs100 billion in two tranches from its current allocation against subsidy which will be adjusted as supplementary grant during 4th quarter of the financial year. The modalities of accounting adjustments were also discussed during the meeting.

The Power Division apprised that already allocated subsidy of Rs330 billion is itself not sufficient to meet annual subsidy requirement. Any reduction in allocation will lead to change in CDMP and accumulation of CD during FY 2021-22. Finance Division shared that due to tight fiscal position, allocation of additional subsidy grants is currently not possible and assured that the amount so released shall be adjusted as supplementary grant during fourth quarter of FY22.

Finance Division further highlighted that sufficient subsidy claims for previous fiscal years are available for adjustment to release the payment. According to the Power Division given the fuel supply chain requirements for winter months, it is imperative that additional funds be disbursed to fuel suppliers on urgent basis against power sector receivables. A portion of these proposed payments to IPPs would be passed on to the coal-based fuel suppliers and would improve their capacity to procure coal for the requirements of power sector during winter months.

Keeping in view its lack of resources, the Power Division requested the ECC of the Cabinet to approve release of Rs50 billion against pending subsidy claims of previous fiscal years. An additional Supplementary Grant of equal amount would be issued during current financial year as adjustment to meet the requirement of the power sector.

Finance Division has asked Power Division to release Rs50 billion to CPEC IPPs from the current allocation under Power Division’s demand No 034 against pending subsidy claims after finalization of reconciliation with Finance Division.

According to the Finance Division, during the course of reconciliation, it has been found that Rs 72.634 billion released by the Finance Division during the FY 2020-21 on account of the following outstanding subsidy claims against repayment of PHPL loan, had not been accounted for by the Subsidy Cell: (i) Power Division has already released outstanding agriculture tube wells of Balochistan claims till June 30, 2020 amounting to Rs 4.363 billion for which Finance Division has earmarked Rs 4.4 billion during CFY 2021-22 against the re-payment of PHL’s loans. Therefore, it has been agreed with the Subsidy Cell that this amount will be re-appropriated in the Tariff Differential Subsidy (TDS) of Discos by the Finance Division in its demand to be released against the outstanding subsidy claims of Applicable Quarterly Tariff Adjustment (AQTA-part of TDS).

Rupees 10 billion has been released under stimulus package as stopgap arrangement for its 1st interest/profit payment for the period May 321, 2020 to November 20, 2020, with a view that same amount be adjusted against TDS claims with the justification that ECC has already approved that markup payment is the responsibility of Power Division against the PHL’s commercial borrowing, backed by the GoP guarantee. However, the amount has not been accounted against the TDS claims for the FY 2020-21.

The story was published in Business Recorder on January 11, 2022.