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Circular debt to be Rs50-60 billion by July 2020

Affan-khan

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THE government has extracted concessions worth several hundred billion rupees in future payments to the 47 independent power producers (IPPs) set up between 1990 and 2013 by forcing their hand but the ‘deal’ has left a bad taste in the mouths of their investors.

The government has secured the lucrative deal in exchange for promises of payment of Rs403 billion it owes to the IPPs. What makes the bargain sweeter for the government is the fact that it will pay only a third of the amount in cash; the remainder will be disbursed equally in 10-year bond and 5-year Sukuk. The power producers will get 40 per cent of their money upfront after signing ‘binding agreements’ revising the terms of their original power purchasing agreements and the rest in six months.

This is not all. Instead of paying cash, the government has extended contracts of 12 IPPs in exchange for an award of Rs92bn won by them in an international arbitration a few years ago. “This alone will save us Rs32bn since the extension in contracts will cost the government around Rs60bn,” Special Assistant to the Prime Minister on power Tabish Gauhar told Dawn by telephone.

Moreover, the new revised agreements have a binding force for the IPPs, but will not be so much obligatory for the government as it retains the right to order forensic audit of their bills if and when it feels like. “The forensic audit option is there,” Mr Gauhar said. “It’ll be a major exercise and can have detrimental effects on (future) investments but it is a decision the government can take any time.”


Background interviews with senior executives of three power companies suggest that the IPPs may have been coerced into agreeing to new power purchasing agreements. They were unanimous in alleging that the government had used the Mohammad Ali Inquiry Committee report on the IPPs to build a case against the power producers and later force them into signing memorandums of understanding. “The threats of corruption inquiries and public humiliation through media trial are enough for a businessman to give in to the pressure from the government,” one of them said.

Khalid Mansoor, chief executive officer of Hubco, who was part of the process of negotiations, didn’t say anything when asked if the government had applied any kind of pressure on them to secure the deal from the IPPs. “This isn’t a deal. We have (voluntarily) given the government concessions for the stability of the power sector and the country and demanded nothing in return. The money they’ve agreed to pay us is ours and has been stuck with the government for the last many years,” he told this reporter from Karachi by telephone.

“We’ve given up Rs836bn in our profits (over a period of next 20 years) and we are still labelled as thieves and plunderers,” he said, pointing to the local arbitration ordered (under the agreement) on an amount of Rs53bn, which the government insists the 12 IPPs have received in excess payments. He said the concessions given by the IPPs would have an impact of Rs1.5 per unit of electricity.

Conversations with energy sector analysts suggest new contracts will significantly shrink future earnings of the IPPs after the removal of the dollar indexation from their returns (on equity), which was one of the main attractions for investors, and downward revision of their returns. “I see earnings of these IPPs shrinking at worst or stagnating at best,” one analyst said.

“The agreed changes in their power purchasing agreements will have a negative impact on the IPPs. The only positive for these companies is the settlement of their long overdue, unpaid bills, which are expected to alleviate liquidity pressures on them and reduce their reliance on borrowings to fund their operations.”

The agreements will cover 53 IPPs with a total capacity of around 8,000 megawatts or nearly 23pc of the installed generation in the country. “The agreements with the remaining six IPPs, including Kapco and Uch, will be signed in a few days as their foreign sponsors are not available at the moment,” Mr Gauhar said. The government owes them nearly Rs90bn in unpaid bills.

“Without going into a debate whether the agreements with the IPPs are fair or not, expensive or not, these are contractual dues of the power companies we are paying them. We have not given them an NRO. We have swallowed a ‘bitter pill’ but secured relief in return,” he argued

The agreements are part of the government strategy to resolve the issue of power sector circular debt. Mr Gauhar said the agreements with the IPPs would help reduce the existing circular debt stocks of Rs2.3 trillion — which includes Rs1tr parked with the state-owned power holding company and part of the public debt — down to Rs1.9tr.

“So once IPPs’ dues are paid, we will be left with circular debt stock of about Rs900bn with about Rs600bn to be paid to state-owned Gencos and around Rs200bn to the CPEC projects,” the SAPM added.

He also listed various measures the government is taking for the resolution of the power debt build-up in future by reforming the Discos to reduce their losses, encouraging electricity consumption to use large idle generation to cut capacity payments and so on.

He agreed that the power projects set up under the 2015 policy under or outside of the CPEC initiative were the bigger elephant in the room and said: “If we somehow succeed in convincing these companies to agree to the same terms we have offered the older IPPs, it will result in savings of Rs6,500bn-7,000bn over a period of 30 years.” But, he added, it was a sensitive matter (because it involved Chinese power companies and banks) and had to be settled by governments of Pakistan and China.”

The management of the IPPs and sector analysts are unanimous that the way the government has forced the power producers to agree to revise their contracts will have a long-term impact on investments in the power sector. “It will have negative fallout on future investments. The future investors might not find investments in future power projects economically viable after all (since the governments here cannot stick to the original agreements),” Khalid Mansoor argued.

If the past experience is anything to go by, the risk premium on energy projects will increase after this deal. But, of course, that will be in future. For now, the government appears to be in a celebratory mood.

 

ziaulislam

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THE government has extracted concessions worth several hundred billion rupees in future payments to the 47 independent power producers (IPPs) set up between 1990 and 2013 by forcing their hand but the ‘deal’ has left a bad taste in the mouths of their investors.

The government has secured the lucrative deal in exchange for promises of payment of Rs403 billion it owes to the IPPs. What makes the bargain sweeter for the government is the fact that it will pay only a third of the amount in cash; the remainder will be disbursed equally in 10-year bond and 5-year Sukuk. The power producers will get 40 per cent of their money upfront after signing ‘binding agreements’ revising the terms of their original power purchasing agreements and the rest in six months.

This is not all. Instead of paying cash, the government has extended contracts of 12 IPPs in exchange for an award of Rs92bn won by them in an international arbitration a few years ago. “This alone will save us Rs32bn since the extension in contracts will cost the government around Rs60bn,” Special Assistant to the Prime Minister on power Tabish Gauhar told Dawn by telephone.

Moreover, the new revised agreements have a binding force for the IPPs, but will not be so much obligatory for the government as it retains the right to order forensic audit of their bills if and when it feels like. “The forensic audit option is there,” Mr Gauhar said. “It’ll be a major exercise and can have detrimental effects on (future) investments but it is a decision the government can take any time.”


Background interviews with senior executives of three power companies suggest that the IPPs may have been coerced into agreeing to new power purchasing agreements. They were unanimous in alleging that the government had used the Mohammad Ali Inquiry Committee report on the IPPs to build a case against the power producers and later force them into signing memorandums of understanding. “The threats of corruption inquiries and public humiliation through media trial are enough for a businessman to give in to the pressure from the government,” one of them said.

Khalid Mansoor, chief executive officer of Hubco, who was part of the process of negotiations, didn’t say anything when asked if the government had applied any kind of pressure on them to secure the deal from the IPPs. “This isn’t a deal. We have (voluntarily) given the government concessions for the stability of the power sector and the country and demanded nothing in return. The money they’ve agreed to pay us is ours and has been stuck with the government for the last many years,” he told this reporter from Karachi by telephone.

“We’ve given up Rs836bn in our profits (over a period of next 20 years) and we are still labelled as thieves and plunderers,” he said, pointing to the local arbitration ordered (under the agreement) on an amount of Rs53bn, which the government insists the 12 IPPs have received in excess payments. He said the concessions given by the IPPs would have an impact of Rs1.5 per unit of electricity.

Conversations with energy sector analysts suggest new contracts will significantly shrink future earnings of the IPPs after the removal of the dollar indexation from their returns (on equity), which was one of the main attractions for investors, and downward revision of their returns. “I see earnings of these IPPs shrinking at worst or stagnating at best,” one analyst said.

“The agreed changes in their power purchasing agreements will have a negative impact on the IPPs. The only positive for these companies is the settlement of their long overdue, unpaid bills, which are expected to alleviate liquidity pressures on them and reduce their reliance on borrowings to fund their operations.”

The agreements will cover 53 IPPs with a total capacity of around 8,000 megawatts or nearly 23pc of the installed generation in the country. “The agreements with the remaining six IPPs, including Kapco and Uch, will be signed in a few days as their foreign sponsors are not available at the moment,” Mr Gauhar said. The government owes them nearly Rs90bn in unpaid bills.

“Without going into a debate whether the agreements with the IPPs are fair or not, expensive or not, these are contractual dues of the power companies we are paying them. We have not given them an NRO. We have swallowed a ‘bitter pill’ but secured relief in return,” he argued

The agreements are part of the government strategy to resolve the issue of power sector circular debt. Mr Gauhar said the agreements with the IPPs would help reduce the existing circular debt stocks of Rs2.3 trillion — which includes Rs1tr parked with the state-owned power holding company and part of the public debt — down to Rs1.9tr.

“So once IPPs’ dues are paid, we will be left with circular debt stock of about Rs900bn with about Rs600bn to be paid to state-owned Gencos and around Rs200bn to the CPEC projects,” the SAPM added.

He also listed various measures the government is taking for the resolution of the power debt build-up in future by reforming the Discos to reduce their losses, encouraging electricity consumption to use large idle generation to cut capacity payments and so on.

He agreed that the power projects set up under the 2015 policy under or outside of the CPEC initiative were the bigger elephant in the room and said: “If we somehow succeed in convincing these companies to agree to the same terms we have offered the older IPPs, it will result in savings of Rs6,500bn-7,000bn over a period of 30 years.” But, he added, it was a sensitive matter (because it involved Chinese power companies and banks) and had to be settled by governments of Pakistan and China.”

The management of the IPPs and sector analysts are unanimous that the way the government has forced the power producers to agree to revise their contracts will have a long-term impact on investments in the power sector. “It will have negative fallout on future investments. The future investors might not find investments in future power projects economically viable after all (since the governments here cannot stick to the original agreements),” Khalid Mansoor argued.

If the past experience is anything to go by, the risk premium on energy projects will increase after this deal. But, of course, that will be in future. For now, the government appears to be in a celebratory mood.

But but IK didnt clean nawaz sharif and zardari shit faster..so lets bring in the combo to test the next saviour ..and see if next saviour can clean the shit faster

This is cusp of our educated people thinking

Shameless
Once these deals are finalizef we will have clearer picture by end of this yr
 

ejaz007

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Circular debt: The perennial problem
BR Research 09 Mar 2021

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No amount of upward electricity tariff adjustment would put an end to the circular debt menace. There has been enough evidence of the same for well over a decade. What did not work yesterday, will not suddenly work tomorrow. It will not hurt to stop pretending the revenues measures as the means to end the circular debt accumulation.
The government recently informed a parliamentary standing committee of the state of affairs on circular debt. Rest assured, the state is dire. As it has been for what now seems like an eternity. Some corners of the government were seen taking credit for the ‘reduced pace’ of the circular debt accumulation. One wonders where the pride in is reducing the pace of circular debt from Rs35 billion a month to Rs31 billion a month. If anything, this should ring more alarm bells and not the sense of comfort one sees.
The grim numbers tell the story. The stock is believed to have crossed Rs2.3 trillion as of December 2020 and is well on its way to clock Rs2.6 trillion by the time FY21 ends. If such numbers can be spun on the basis of year-on-year comparisons – that is a cause of worry and not jubilation. The contributors to the circular debt stock continue to remain the same old – from delayed tariff notifications to the perennial T&D losses and recovery at the discos, from the ill-timed clearance of subsidies to the inability to implement quarterly adjustment in time.
With the recent increase in base tariff across consumer categories, expect the pace of increase to slowdown a tad – but that is what has accounted for in the estimated increase of Rs436 billion for the year by June end 2021. Recall that the stock parked with the PHPL is treated as the country’s debt, where interest keeps compounding, and the mounting servicing cost contributes to the already unsustainable fiscal deficit.


It is the consumer that ends up paying for all the inefficiencies – at times in the form of increased base tariffs, or monthly and quarterly adjustments, or through paying for interest on the stock forgoing a substantial amount that could have otherwise been utilized for better purposes. Granted that the recent efforts to renegotiate terms with the IPPs will yield substantial savings over the long-term, but that pales in comparison to the quantum of the task at hand.
No amount of clearing the circular debt by any fancy way, be it cash or government securities will put an end to the menace. These are stopgap measures, different versions of which have been tried in the past. This will undoubtedly slowdown the increase for a little while and improve liquidity in the chain, but without addressing the root causes, there is no end to the problem.
The discos bleeding has continued unbated, and that gives a Rs200 billion head start to circular debt. The recovery at 90 percent is a problem that is bigger than the T&D losses at 18 percent, of which 15 percent is already allowed by the regulator. The inefficiencies at the generation end time and again lead to higher monthly adjustment requirements, which further complicates the payment chain between fuel suppliers and power producers. The problem has been around for long enough for the policymakers to know the solutions. Short sightedness is not an option. It was high time ten, five, three, two, or one year ago to get the act together. It won’t hurt to undertake real reforms before it gets beyond repair.

 

War Thunder

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Amazingly Imran is going to leave a far bigger debt problem than Nawaz or Zardari according to the IMF. But the PTI retards refuse to see whats in front of their face and attribute all ills on Nawaz. Funny if it was not sad.
THE EXPRESS TRIBUNE > BUSINESS
Pakistan’s debt pile to swell to 84.1% of GDP by 2023
By Shahbaz Rana
Published: April 11, 2019
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The IMF has not shown any improvement in fiscal indicators till 2023-24. It has shown the budget deficit at 7.6% of GDP by 2023 and 7.7% by 2024. PHOTO: FILE

ISLAMABAD: The debt pile that Prime Minister Imran Khan would leave behind at the end of his five-year term will be equal to 84.1% of the size of Pakistan’s economy – far higher than the gross public debt at the end of the PML-N government, suggests a new report of the International Monetary Fund (IMF).

The report, released on Wednesday from Washington, puts PM Imran’s claim of reducing the country’s debt to test. In its annual flagship report “Fiscal Monitor – Curbing Corruption”, the IMF has shown the public debt-to-GDP ratio at 84.1% of gross domestic product (GDP) by 2023, higher by 12 percentage points than the level left behind by the PML-N government.

The report also says that Pakistan’s total financing needs have shot up alarmingly to 42.3% of the size of its economy, or Rs16 trillion, due to maturing debt and yawning budget deficit – a trend that will further worsen in the next fiscal year.

The IMF has released Pakistan’s fiscal indicators for the next five years, which portray that the country will sink deeper into debt.
The IMF has given these indicators in terms of GDP that The Express Tribune has translated into rupees by using the projected size of the economy in fiscal year 2018-19 ending June 30 and fiscal year 2019-20.

At the end of the PML-N’s term, Pakistan’s gross public debt was equal to 72.1% of GDP, which the IMF said would increase to 77% at the end of current fiscal year. By fiscal year 2019-20, the debt-to-GDP ratio would be 79.1% and it would gradually swell to 84.1% of GDP, stated the report.

Last week, Finance Minister Asad Umar said Pakistan’s gross public debt would remain at 70% of GDP by 2023 as no sharp reduction was possible. But the IMF projections were significantly higher than what Umar planned to do.

Under the Fiscal Responsibility and Debt Limitation Act, Pakistan’s debt should not be more than 60% of GDP.

According to the report, Pakistan’s budget deficit – the gap between expenditures and revenues – will widen to 7.2% of GDP or Rs2.8 trillion in the current fiscal year.

IMF’s projected budget deficit is Rs550 billion, or 1.6% of GDP, higher than what the finance ministry has estimated in its revised budget. This paints quite an alarming picture, suggesting that the PTI government will not only miss its first year’s budget deficit target but would also borrow more than its estimates.

During the current fiscal year, the public debt, equal to 35.1% of GDP, will mature, said the IMF. This will be equal to Rs13.4 trillion. On the basis of budget deficit and maturing debt, the IMF has estimated total financing needs at Rs16 trillion or 42.3% of GDP for this financial year, FY19.

Times are tough but economy will improve: Asad Umar

Majority of the financing needs are related to maturing domestic debt that the government meets by getting these loans rolled over.

For next fiscal year 2019-20, the IMF has estimated that Pakistan’s total financing needs would surge to 46% of GDP or Rs19.3 trillion. The international lender has estimated budget deficit at 8.7% of GDP or nearly Rs3.7 trillion. The debt maturity has been estimated at Rs15.6 trillion or 37.2% of GDP, according to the report.

The IMF has not shown any improvement in the fiscal indicators till 2023-24. It has shown the budget deficit at 7.6% of GDP by 2023 and 7.7% by 2024. These assumptions are based on the premise that the revenues would remain below 15% of GDP in the next five years – even lower than 15.3%, the level left behind by the PML-N.

The IMF has estimated that expenditures would remain over 22.3% of GDP in the next five years, higher than the level at the end of last fiscal year.

The IMF has also shown the primary deficit for next five years, which is calculated by excluding interest payments. In its programme negotiations, the lender has been pushing Pakistan to show primary balance that can only be achieved by either cutting the development budget or the defence spending.

In its projections, IMF has shown the primary deficit over 2% of GDP for the next five year. But in its economic roadmap, the Ministry of Finance has shown the primary balance in the range of 0.8% of GDP to 2% of GDP. The ministry has shown the primary balance on the back of a steep increase in the revenue, which the IMF is not recognising.

Corruption

The fiscal monitor’s report states that a common element of many anticorruption reforms is increasing civil servants’ wages. In theory, this helps by reducing the need for civil servants to request bribes to complement very low wages and deterring corrupt activities by raising the cost of being caught.

However, there is insufficient evidence that raising wages by itself can play a prominent role in fighting corruption. “On performance-related incentives, an experiment in Pakistan also shows the potential for undesirable consequences: while performance-based salaries of tax officials led to a significant increase in tax collection by as much as 50%, bribe requests also increased by 30%,”added the IMF report.

Published in The Express Tribune, April 11th, 2019.

https://tribune.com.pk/story/1947798/2-pakistans-debt-pile-swell-84-1-gdp-2023/



Too dumb to read what's in OP? Or just blinded in general?

@The Eagle Check this chick trying to turn a thread to his own liking without having a clue on what was in OP
First of all I was born in Uganda and consider Uganda to be second country after the UK. I have no great love of India or Pakistan. I do not hold a Indian passport nor have a desire to have one.
As for Hindutwa the last time I attended a temple was many years ago only as a social necessity since I had the intelligence at age 13 that ALL RELIGIONS consist of dupes and charlatans that prey on the semi-intelligent of this world.
Your debt problems are very real and no amount of deceit and self deception is going to cure it

Being born in Uganda doesn't change the fact that you inherit the low IQ genes from your indian forebears.
 

Affan-khan

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The agreements are part of the government strategy to resolve the issue of power sector circular debt. Mr Gauhar said the agreements with the IPPs would help reduce the existing circular debt stocks of Rs2.3 trillion — which includes Rs1tr parked with the state-owned power holding company and part of the public debt — down to Rs1.9tr.

“So once IPPs’ dues are paid, we will be left with circular debt stock of about Rs900bn with about Rs600bn to be paid to state-owned Gencos and around Rs200bn to the CPEC projects,” the SAPM added.

so only 900 Billion out of 2.3 trillion left.
600 billion gencos
200 billion cpec projects
90 billion 6 IPP's

if they convince the chinese on same agreement then hopefully it will reach 0
 

ziaulislam

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so only 900 Billion out of 2.3 trillion left.
600 billion gencos
200 billion cpec projects
90 billion 6 IPP's

if they convince the chinese on same agreement then hopefully it will reach 0
point is this is still IFs and Buts..nothing has been signed yet

once private IPPs are paid off and if CPEC projects are renegotiated then rest of the money can simply be adjusted
 

Chak Bamu

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So what happened? I guess some people discovered that there are no miracle cures after all?

Just do one thing: account for all the possible generation capacity that costs less than Furnace Oil and treat it as a capacity that must be utilized at 100%. Whatever is left beyond that may be treated as a necessary evil which may be phased out as lower cost projects come on line. If proportion of electric power generated via FO increases (it has) then heads must roll (has not happened so far and shall not happen during this government).

This government's LNG fiasco has shown where the problems lie. FO consumption increased while most efficient thermal power stations (ones based on LNG) were shut down. It is ineptitude compounded by fat cats enjoying commissions on FO. The relevant ministers should have had laser-sharp focus on fuel mix but sadly that has not happened since 2018.
 

ZAMURD

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point is this is still IFs and Buts..nothing has been signed yet

once private IPPs are paid off and if CPEC projects are renegotiated then rest of the money can simply be adjusted
What is future gonna look like??
 

ziaulislam

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The risk for china is everyone will try to pull the same game. So OBOR might be screwed eitherway.
Chinese should have thought about this before hand rather than going on an unrealistic return of investment startegy

Who in their right mind think they will get an ROR of 20% on thermal power plants
 

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