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Govt may fail to respond to two more notices

After being defaulted thrice in May on the sovereign guarantees provided to the independent power producers (IPPs), the government is likely to be on the same course in June and July too with possible default on two more similar notices, sources said on Friday.

The incessant default on the sovereign guarantees and ensuing legal battle could potentially create bad name for the federal government, besides downward revision in its rating, they said.

One of the most concerning thing, the sources said, is the failure of the government in availing even a way out arrangement agreed with the IPPs on its sovereign default.

Under this arrangement, which was approved by the Economic Coordination Committee (ECC) of the Cabinet, Rs18 billion was to be paid immediately to the IPPs, the sources said.

Moreover, it was also assured that the IPPs would not be penalised in case it delays payment in the future, they added.

Sources in the ministry of water and power said that the government has defaulted on its sovereign guarantee three times since March and has lost legal option to penalise eight affected independent power producers for failure to produce 1,700MW.

They said that these IPPs are, in fact, doing a favour to the power consumers by continuing electricity generation from whatever daily payments are made to them.

They said that the daily payments hardly cover 30-40 percent of the fuel expenses of these eight IPPs, resultantly, they admitted, the country, thus, remains deprived of around 1,000MW.

Meanwhile, a representative of the IPPs on the condition of anonymity said, in total, the government defaulted Rs26.034 only in May this year.

Giving breakup, he said, the government defaults Rs18.540 billion on May 5 after expiry of the final notice given on March 19, adding that the government also defaulted Rs6.298 billion on May 22 after expiry of the final notice served on April 5.

The third default of Rs1.196 billion occurred on May 29, after the expiry of the final notice given on April 12.

He said the IPPs have served other final notices between May 3 and 7, amounting to Rs13.202 billion that would expire on June 18. Another notice calling for sovereign guarantee of the government worth Rs11.045 billion, he said, was served on June 4 and would expire on July 17.

The eight affected IPPs established their projects under the Power Policy 2002. Under this policy, the government assured payment of electricity supplied within 30 days. In case of suspension in the power supply the government could impose penalties on these IPPs.

It was in this contest that after the government’s default, the IPPs asked the government to pay at least Rs18 billion and ensure supply of fuel in case the future payments are delayed.

Meanwhile, a source believed that it is now an established fact that the government has defaulted on its sovereign guarantees. He said the affected parties have the right to go to the courts inside and outside Pakistan for redemption of guaranteed amount.

The restraint shown by the IPPs is commendable because once they exercise this option Pakistan would face an ugly situation in the global financial circles and all foreign assistance could stop forthwith

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