By SKM
February 1, 2025
ISLAMABAD: The sitting regime has started working to convert the circular debt (CD) in the power sector into public debt that will result in lowering the tariff by Rs3.37 per unit.
The government is also on its toes on re-profiling of the $16.26 billion debt borrowed for projects on hydel, imported coal, Thar coal, wind, solar, transmission, and nuclear, WAPDA hydel and Neelum-Jehlum projects. The government pays $3 billion as debt servicing through end consumer tariff which contributes Rs8.63 in capacity charges in the tariff. The government is trying hard from pillar to post to re-profile the loans by increasing the debt payment tenure to achieve the relief of Rs5.1 per unit. Pres
The government functionaries are doing this uphill task as part of ongoing reforms in the power sector. The 9-page paper on reforms in Power Sector with current context and way forward available with Exclusivewaves.com.pk says that the refinancing interest-bearing circular debt through sovereign debt, effectively making it public debt, will reduce tariff in the range of Rs 3.23 per kWh (for non-protected consumers), which increases to Rs3.78 per kWh after tax. Such a structure will effectively remove arbitrage that exists within sovereign risk and enable better pricing of sovereign payables.
However, any such intervention may increase overall sovereign debt levels slightly – however, the benefit of reduced prices would have a positive impact on overall electricity consumption, and growth. Such an intervention would have a far higher positive impact on overall GDP through higher great, minimizing distortion due to increased debt in the process.
Total Circular Debt is Rs2.26 trillion (interest bearing: PKR 1.74 trillion), which is split into Power Holding Limited (PKR 683 billion), Payable by CPPA to Power Producers (PKR 1060 billion), and Payable (non-interest) by CPPA to Power Producers (PKR 683 billion). PHL Debt is priced at 3-m KIBOR + 0.45%. There exists a strong case to reduce the same spread, by moving to a fixed rate bond of a longer tenor, and extract interest savings. Refinancing the same in the current environment can also yield substantial interest savings, which can then be passed on to electricity consumers. Similarly, receivables payable by CPPA to IPPs also accrue an interest at 3-m KIBOR + 3%, which is a very high spread for payables (quasi-debt) guaranteed by sovereign. Hence there exists a strong case to reduce the same spread and extract interest savings.
In addition, the government is in the process of carving out its plan to sell the cheaper surplus electricity to bulk consumers at the auctioned prices for 2-3 years to cater to the inducing demand of the industry. There is surplus capacity available in the South that cannot be dispatched due to pricing and transmission constraints – while capacity costs for the same are already being paid. There exists a possibility that such surplus capacity can be auctioned through a Reverse-Dutch Auction process, for industries, whether existing, or fresh, establishing new industrial units, and inducting incremental demand in the system.
“Under the plan, we will first fix the reference price of the electricity and the interested parties would be asked to come up with bids for surplus electricity not less than the reference price,” relevant officials say. “The officials of Central Power Purchase Agency (CPPA) and National Transmission Despatch Company (NTDC) are also currently working on the implementation mechanism and reference price.”
As far as the rationalization of the capacity payments with IPPs is concerned, the task Force is doing its job tremendously. It has so far scratched down the contracts of 6 IPPs with future saving of Rs411 billion, changed tariff pricing formula of 8 bagasse-based power plants by delinking dollar and connecting it with PKR resulting in saving of Rs238 billion and converting 15 IPPs from take or pay to take and pay mode with future impact of Rs825 billion. In to to task force has saved the future amount of Rs1400 billion by revising the contracts. Task Force is also on the advance stage on revising the contracts of the government power plants and then it will revise the wind and solar power plants’ contracts with the total benefit of Rs2.6 trillion. Ends
