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Industrial groups stop investment in power sector projects

Industrial groups have stopped investment in the power sector projects as they have been forced to pay bank dues to avoid defaults, experts said. Under the 1994 power policy, major investment came from foreign players but under the 2002 power policy, major investors are big corporate groups of the country, they said.These groups include Nishat Group that besides operating four power plants is in banking, textiles, cement and insurance businesses. Similarly, Atlas Group, managing Atlas Power Plant, is the largest producer of motorcycles in Pakistan, and has a major car manufacturing facility in Lahore, making batteries and is in the services sector, the experts said. Sapphire is the most respected name in textiles and the group has interests in various other industrial sectors and established a power plant under 2002 power policy. The Saifullah Group is also operating an IPP. Engro the most dynamic corporate company is also operating an IPP, they said. “The government owes these IPPs on an average Rs5.5 billion each,” Mohsin Syed, an expert said.No company in Pakistan has cash flows to absorb such huge amount, he said, adding that still all IPPs established under 2002 power policy are update in their payments. If these IPPs default on bank loan their names appear on the credit Information Bureau of the State Bank of Pakistan (SBP), he said, adding that all other companies of their group would appear in the CIB list. None of the company of the group belonging to defaulted IPP would be able to conduct banking transactions, including opening the letter of credits, he said. “These groups have no choice but to ensure that their IPP project does not default to the banks,” he said. Syed said that they arrange payments from their sister concerns to pay back the banks on time. Official records show that the government owed Nishat Power Rs6.255 billion as of January 11, and Rs6,492 million to Nishat Power for the two IPPs established by the Nishat Group under the 2002 power policy (companies established under 1994 power policy do not face these issues). The Nishat Group, thus, has to arrange Rs12.747 billion from its own resources to clear bank dues. This means holding up of several investment plans of the group in other projects. Similarly, Pakistan Electric Power Company (Pepco) owes Rs6.999 billion to the Atlas Power, Rs2.537 billion to the Sapphire Electric, Rs5.462 billion to Saif Power and Rs6.821 billion to Engro Power. These companies are servicing their debts from group resources because they do not want their names to appear in the CIB list. This is certainly impacting their investment plans.Faisal Qamar, an economist, said that for every Rs300 diverted to service sister company’s bank dues, the company loses investment opportunity of Rs1,000 as the corporate sector provides 30 percent equity and 70 percent is financed by the bank.He said that on Rs12.7 billion government dues against Nishat, the company could have launched a project worth Rs40 billion. It was found from official records that the government is managing the payments of the 1994 IPPs indirectly by assuring them full availability of fuel through Pakistan State Oil (PSO) and these IPPs default on PSO payments if they do not receive payment from the government. The part payments they receive ensures that whatever dues stand against the government they are balanced out by withholding the payment of PSO.The IPPs established under 2002 power policy do not enjoy this luxury as they have to buy fuel to run the project from their own resources.

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