The Federal Cabinet has decided to buy out eleven IPPs based on furnace oil (FO) at a discounted value of Rs. 150-200 billion, reported a national daily.
The decision came to light on Tuesday, and it was reportedly taken to eliminate the capacity charges payments of the IPPs that have amounted to Rs. 450 billion. This amount is payable in the remaining seven years of their contracts.
Capacity payments are an important contributor to the circular debt. They extinguish the need for these periodic payments and can facilitate the resolution of this issue to an extent.
The payable amount in this regard for the current year is Rs. 900 billion, which will be compounded to Rs. 1,500 billion in 2023.
The Special Assistant to the Prime Minister on Power and Petroleum (SAPM), Tabish Gauhar, also gave a briefing on the power sector at a meeting of the federal cabinet with Prime Minister Imran Khan in the chair on Monday. He also briefed the attendees about the circular debt, reforms, and the potential solutions to these issues, including the targets for the reduction of losses and better recovery.
The SAPM also presented a revised Circular Debt Management Plan (CDMP) that was approved by the Cabinet, except for the clauses about the increase in the tariff to deal with the capacity charges payments issues.
Gauhar proposed the buying out of eleven old power plants with a capacity of 3,100 MW capacity that only contribute five percent of their electricity production capacity per annum. However, in return, the government will have to pay them Rs. 60 billion per annum under the capacity head.
He also proposed for these IPPs to be bought at a discounted value of Rs. 150-200 billion through PIBs and Sukuks, and pointed out that the circular debt may soar to Rs. 4.7 trillion from the current Rs. 2.3 trillion in the absence of corrective measures.