Cabinet approves second tranche worth Rs134.78bn to IPPs

November 24, 2021 (MLN): The federal cabinet approved the second tranche payment amounting to Rs134.783 billion to the independent power producers (IPPs) as per the payment mechanism, according to the media sources on Tuesday.

The said amount comprising of 60% of the total outstanding dues is likely to be disbursed to IPPs by December 3, 2021, where HUBCO is expected to receive Rs34.8bn, KAPCO Rs59.4bn, Rousch Power Rs8.5bn, Fauji Power Rs2.6bn, Pak Power-Gen Rs9.8bn and Lalpir Rs9.3bn. While another Rs6bn is to be shared among KEL, Saba Power, and FFC.

As seen immediately after the first tranche where IPPs announced dividend payments (HUBCO Rs5/share and KAPCO Rs3.5/share), the second installment of the settlement may again trigger a dividend payout from these IPPs which likely bring them in limelight, said Jehanzaib Zafar, Head of Research at AKD Securities.

Currently, the scrips of HUBCO and KAPCO are trading at Rs73.48/share and Rs31.35/share, up by 0.49% and 3.3%, DoD, respectively.

“We expect this second payment to be structured on similar footings as the last transaction. To this end, the government has only budgeted a payment of Rs136bn to IPPs in the fiscal budget FY22 which also gives credence to our opinion that only partial payment will be made in cash,” he added.

As per the media reports, the disbursements are part of the tariff renegotiation process in order to settle the circular debt. The current tranche will take the total payments under the Feb 28 tariff renegotiation agreement to Rs225bn.

This development came right after the staff level agreement reached between the government and the International Monetary Fund (IMF) for the sixth review under the Extended Fund Facility (EFF).

The fund also lauded this notable structural achievement of the government for unlocking lower capacity payments fixed in renegotiated power purchase agreements (PPAs).

To recall, the government released the first payment transaction of 40% to 20 IPPs amounting to Rs89.2 billion equally divided in cash 5 years’ Sukuk and 10 years’ PIBs in June.

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