The Independent Power Producers of Pakistan (IPPs) are in severe liquidity crisis owing to the alarming level of circular debt and power purchaser’s default on its contractual agreement, as the circular debt once again reached to $5 billion.

“Despite payment of around $5 billion circular debt in June 2013, it has again reached similar levels within a year”, said Khalid Mansoor -Chief Executive, Hubco, Pakistan’s largest Independent Power Producer (IPP), while talking to media. He informed that circular debt consist of due payment of IPPs as well other public sector power entities including refineries and oil companies.

He said that Wapda’s payment default has resulted in severe effects on the financial viability of the power plants and has affected the sustainability of the operations. Condition is such that the IPPs are on the verge of collapse, despite engaging their entire working capital resources.

“There is no other solution to resolve circular debt other than enhancing the power subsidy and / or increasing consumer tariff and improvement on power sector governance issues”, Khalid Mansoor said and added that no power project will reach financial close unless the menace of circular debt is controlled.

“In order to ensure financing of the new IPPs, the Government must address issues related to circular debt and power sector governance”, he said.

Khalid Mansoor said that country’s existing energy mix is neither sustainable nor affordable as over 40pc of power generation is dependent on imported Residual Fuel Oil (RFO). Oil imports make about 33pc of the country’s total imports. This results in higher cost of power generation, alarming levels of circular debt and high import bills draining country’s foreign reserves. The country’s oil import bill is $15 billion.

He said that it is imperative to curb our dependence on foreign oil and look towards investments in indigenous resources like coal and hydro that can help build our local energy economy. Creating this energy economy is not only a stopgap measure to meet the challenges, but also an opportunity that can be seized and cultivated to deliver long-term socio-economic benefits for the country and its residents, he added.

Globally, the percentage of energy production through coal out of the total energy mix is approximately 41pc; however for Pakistan this stands at a massive low of 0.1pc - a fact which is both alarming and comforting - alarming due to its low constitution and comforting in the fact that we can still make judicious investments today that will help us overcome this threat, he informed.

“Coal can reduce the import bill significantly. Tariff for electricity generated through coal is estimated to reduce to $10/kWh from the current RFO based tariff of $19~22/kWh. Coal conversion will reduce the import bill by substitution of expensive RFO with cheap imported coal as the first step. As a second step, reliance on imported coal will be substituted with indigenous coal, ensuring energy security and better balance of payments for Pakistan”, he remarked.

Khalid Mansoor said that Hubco’s Board of Directors has given its management the mandate to develop a 2x660 MW (with an aspiration of 6x660 MW) Imported Coal Based power plant and coal jetty. The two projects would be completed by June 2018.

He said that Thar coal is the only solution for ensuring the energy security of Pakistan. The mines must be scaled up with proper infrastructure for coal transportation within the country, he added.