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Express Tribune
16-05-2025
- Business
- Express Tribune
NJHP repair to take two more years
Neelum-Jhelum is a unique project as it is 90% underground and 10% above the ground and requires the building of an extensive tunnel system under a huge mountain. PHOTO: FILE Restoration work at the Neelum-Jhelum Hydropower Project (NJHPC) would take two more years to complete, Water Resources Minister Muhammad Moeen told the National Assembly on Friday, as a committee investigating the issues was expected to finalise its report soon. Speaking during the Question Hour, the minister said that the main contract for carrying out the repair work on the project - which was shut in May 2024 - had not yet been awarded in accordance with the government's instructions. So far, Rs6.6 billion was spent to repair the project's Tail Race Tunnel (TRT). After the TRT was fixed, the plant resumed full operations in March 2024, generating 969 megawatts of electricity. However, the plant had to be shut down again two months later due to issues in Head Race Tunnel (HRT)," he said. He said that the project is currently working under a provisional tariff on a 'take-and-pay' basis. There are no fixed payments or returns on investment. The company is managing its expenses through its own resources and pending payments from power sales to the Central Power Purchasing Agency (CPPA-G)." According to the National Power Control Centre (NPCC), the minister stated, the country has enough power generation to meet demand, and no load-shedding is being done due to shortages. He added that local electricity supply had not been affected by the shutdown. The minister informed the house that the project's consultants had been told to review and improve maintenance procedures to avoid such issues in the future. He stressed the importance of operating and maintaining the plant as per equipment manufacturer's guidelines to prevent unexpected closures.
Business Recorder
09-05-2025
- Business
- Business Recorder
Power sector: Base tariff relief likely
The Central Power Purchasing Agency (CPPA) has set the ground for the power base tariff adjustment for FY26, submitting the Power Purchase Price (PPP) projection in consultation with multiple agencies including the Power Division. The CPPA's PPP projection envisions seven different scenarios, with varying assumptions for demand, rupee dollar parity, fuel prices, and hydrology. The PPP deviation between the best case and worst-case scenario is Rs1.95/unit. The lowest PPP is set at Rs24.75/unit for FY26 – which is Rs0.29/unit lower than the lowest PPP envisioned in the previous rebasing exercise of FY25. The PPP allowed for FY25 was Rs27/unit, with an absolute amount of Rs3.5 trillion. What looks increasingly likely is that the final PPP for FY26 will be lower year-on-year – regardless of which scenario is used as best case. The year-on-year savings in case of most likely adoption of Scenario 2 – which envisions are close to Rs0.96/unit – which may not sound massive but is a relief, especially considering this will be the first time in many years when year-on-year change in PPP is negative. For context, Pakistan's electricity PPP had doubled in last five years, despite significant improvement in fuel generation mix. A large part of it is due to savings to the tune of Rs100 billion resulting from renegotiated IPP contracts. The bar for demand has been set low – and understandably so, given the rather dismal rate of demand revival in the past two years. Even the 'high' demand scenario envisions power sales going up only 5 percent, that too, from a multiyear low 12-month demand from January to December 2024. The 'normal' demand growth scenario sees it growing 3 percent – which sounds just about right, given the ground reality, on both domestic and industrial fronts, and with the solar boom in full swing. What is concerning is the rather steep fall in power demand, which for FY26 is likely to be set at the lowest in five years. It remains to be seen what room does the government have in lieu of subsidies, once the final revenue requirement is approved – after induction of prior year adjustment and distribution margin. The fate of Rs1.71/unit subsidy that is scheduled to expire in June 2025, will determine the extent of base tariff relief for FY26. While the exchange rate and international commodity fuel prices have stayed stable, the biggest concern for upcoming fiscal year could be a sharp drop in electricity generation from hydel sources. Low hydrology could take the PPP close to Rs27/unit – wiping out any potential gains from the IPP negotiations. It remains to be seen, how the authorities treat hydel generation assumptions – especially in light of recent geopolitical events. Even without the one-sided abeyance of Indus Water Treaty, experts had been raising concerns over low hydrology going forward. In all likelihood, low hydrology will lead to higher periodic and monthly adjustments, even if base tariff does not account for the same.
Express Tribune
07-03-2025
- Business
- Express Tribune
Govt cuts deal to settle Rs1.25tr circular debt
The government has reached a deal with commercial banks to borrow Rs1.25 trillion at less than 11% interest rate as part of its three-pronged strategy to eliminate the threat of circular debt to the power sector viability soon. The fresh deal is at least 3% to 5% cheaper than the interest on the existing facilities and the penalties that the government pays for not making timely payments of the energy purchases. The Rs1.25 trillion debt is taken on the books of the Central Power Purchasing Agency (CPPA) and it would not be part of the overall public debt. The government is currently paying up to 14% cost to the commercial banks on the loans that it had taken in the past to retire the circular debt and up to 16% price to the Independent Power Producers (IPPs) for not making timely payments to them. The understanding has been reached a day after the contours of the plan were shared with the International Monetary Fund for its endorsement, the government sources told The Express Tribune. With the implementation of the plan, the circular debt stock will be eliminated but the flow of circular debt would continue for at least three to four years, the global lender was informed during the ongoing talks. The deal has been considered as a major success of the government of Prime Minister Shehbaz Sharif, which with the help of the military, has undertaken numerous steps to reduce the cost of electricity and minimise inefficiencies. The deal has been worked out by a combined civil-military task force for the Structural Reforms in Power Sector and its modalities were finalised in the Ministry of Finance on Thursday in the presence of the civil-military leadership. Prime Minister Shehbaz Sharif has already made the chairman of the Task Force, Mohammad Ali, as his adviser on privatisation. A formal notification is expected soon. Haroon Akhtar Khan has been made Special Assistant to Prime Minister on Industries and Production, replacing incumbent Industry Minister Rana Tanveer Hussain. According to the deal, the commercial banks would cumulatively lend Rs1.25 trillion to the government at a rate of 1% less than the prevailing Karachi Interbank Offered Rate (KIBOR). This translates into about a 10.8% rate. The government tried to get the loan at 8% fixed interest rate but the banks did not agree to it. Out of the total Rs2.4 trillion existing circular debt stock, there is a need to resettle the Rs1.5 trillion principal amounts to eliminate the debt stock, the officials who negotiated the deal told The Express Tribune. As part of the three-pronged strategy, the government would retire Rs1.5 trillion through fresh borrowing and already available budget support. An amount of Rs463 billion would be reduced from the circular debt due to recent revised energy purchase agreements with the IPPs and Rs225 billion would not require any settlement. The details showed that the government will borrow Rs1.25 trillion from the commercial banks, and Rs250 billion space is already available in the budget. The sources said that the government will negotiate with the independent power producers to waive the interest payments amounting to Rs272 billion in return for taking upfront full payments. Out of the Rs1.25 trillion, the Rs683 billion will be settled against the Power Holding Limited debt. This debt had been obtained in the past at a rate of KIBOR plus up to 2%. The nuclear plant powers will get Rs280 billion, the LNG power plants will get Rs220 billion and the government owned power plants will receive Rs5 billion. The coal power plants dues will also be settled. How the debt will be serviced The government will repay the Rs1.25 trillion debt over a period of six years and it will be serviced through the Rs2.83 per unit average debt servicing surcharge that the consumers already pay. An estimated Rs350 billion is being generated every year. During the first year of the deal, the government will pay about Rs135 billion in interest cost on this debt and the remaining savings of about Rs215 billion will be used to pay off the principal loans being taken from these banks. However, one backdrop of the deal is that the interest rate will rise with the increase in the policy rate by the central bank, which would reduce the space for making principal repayments. The finance ministry had earlier struck a deal with the commercial banks to settle PIA's Rs268 billion worth debt at 12% fixed rate, or in case the KIBOR drops below this rate the interest rate will automatically reduce. At that time, the interest rates were 22%. The government has already given Rs683 billion irrevocable guarantee against the Power Holding Limited loan. This Rs683 billion debt would also be restructured at 1% minus KIBOR and the guarantees will be used again against the fresh lending. The Rs200 billion unencumbered land owned by eight power distribution companies will be used as collateral to back the Rs200 billion debt. The government expects that another Rs463 billion circular debt will be reduced through the ongoing renegotiations of the IPPs deals, excluding Chinese power plants. A sum of Rs224 billion that is part of the existing debt stock related to fuel suppliers or owed to the government hydel plants will not require any settlement. Flow still remains a problem During the ongoing talks with the IMF, the flow of the circular debt remained a concern, although the government had managed to restrict the flow to Rs11 billion in the first half of this fiscal year. The IMF was told that it will take three to four years to stem the annual increase in the circular debt due to inefficiency, theft and losses. Overall, circular debt had been restricted to Rs2.384 trillion during the first half of this fiscal year, which again jumped close to Rs2.48 trillion by end of last month. The IMF was told that there was an increase of Rs50 billion in the flow of the circular debt in January and another almost equal amount was added in February. February's figures were provisional and might be slightly adjusted. The IMF inquired about the reasons behind the major expected increase in the circular debt in the second half when during the first half there was no increase. An official of the Energy Ministry said that it will take three to four years to completely stem the flow of circular debt. He said that it is expected that three power distribution companies Gujranwala, Islamabad and Faisalabad will achieve recovery targets set by Nepra in the current fiscal year. The official further said that in the next phase Multan and Lahore power distribution companies would achieve NEPRA's recovery targets but it will take three to four years when Hyderabad, Sukkur and Quetta power distribution companies' recoveries of the bills would improve, he added. The IMF was informed that the DISCO Support Unit was made functional in Hyderabad, Lahore and Sukkur power distribution companies, which would help reduce the flow of the circular debt. During the first half of the fiscal year, the power sector suffered Rs158 billion in losses due to inefficiency, theft, and under-recoveries of bills. Little more than half of the Rs158 billion losses were caused by just two power distribution companies Hyderabad Electricity Supply Company (HESCO) and Sukkur Electric Power Company (SEPCO). The government of Prime Minister Shehbaz Sharif had not reshuffled the boards of HESCO and SEPCO due to an arrangement with the Pakistan Peoples Party (PPP)-the government's ally in the National Assembly that rules Sindh province. The sources said that the IMF did not accept the government's proposal to extend the winter relief package for the industrial and the agriculture sectors for the full fiscal year. The IMF inquired about the impact of the winter package on the power generation. During the month of December, the industrial electricity consumption increased 6.9% and in January the increase was 2.7%, Sardar Awais Laghari, the Federal Minister for Power told the special cabinet meeting on Tuesday. The IMF also did not accept the government's proposal to waive off the GST on the electricity bills to reduce the cost for the end consumers.
