January 1, 2021(MLN): In a major development, the Independent Power Producers (IPPS) and the government have in principle come to an agreement over payment terms of the outstanding circular debt.
According to industry sources, a meeting was held between Government officials and IPPs yesterday, to discuss the plan for offloading dues of the power sector under the recently signed MoUs. This is the first meeting in which the government has come up with an applicable plan of due payments, in lieu of agreements, which was acceptable for IPPs.
In a meeting, it has been tentatively agreed that the government will be disbursed 30% (Rs.137 billion) of the outstanding receivables i.e. Rs 450 billion in cash payment evenly in three installments, with the first payment likely in January 2021, while the rest i.e. Rs.237 billion dues will be offloaded in equal tranches by June 2021 and December 2021, via issuance of tradable Government securities.
To note, the current estimated outstanding dues of the power sector due to circular debt are Rs 1.23 trillion. The above understanding between the government and IPPs to pay the outstanding circular debt is expected to finalize in the coming days.
With regards to the remaining 2/3rd of the circular debt receivables, which is around Rs 820 billion also expected to settle in a similar arrangement going forward.
Taurus Securities in its report, while envisaging the effect of the above development highlighted that in addition to improving cash flows for the IPPs, this settlement is also expected to indirectly flow to PSO, OGDC, and PPL, as IPPs are expected to settle their payables to the gas companies also.
However, at this point in time, it is difficult to estimate the cash to be received by any listed company in the energy chain with certainty, it added.
