LAHORE - With Arab light crude price over $110 per barrel, investors have started to worry about the circular debt and are now more concerned about the future dividend payouts. But looking at the recent financials it is evident that large IPPs like Hubco and Kapco are continuously passing on the impact to their fuel suppliers while those IPPs which rely on private fuel suppliers (Nishat Chunian and Nishat Power) their liquidity is continuously eroding. We maintain 'Market-weight stance on listed IPPs as we think that the circular debt issue could linger on for next 1-2 years. The latest financials suggest that the two largest IPPs hubco and Kapco which together contribute more than 22 percent of the total thermal electricity, their net receivables (receivables less payables) remained the same during 2QFY11 versus 1QFY11. This shows that the growing circular debt is not affecting these entities as they are simply passing on the circular debt to the fuel suppliers which are public sector companies including PSO and SNGPL. Hubco which purchases fuel oil (FO) from PSO, its net receivables remained at Rs9.4bn by the end of 2QFY11 compared to Rs10.1bn in 1QFY11. Similarly, Kapco which rely both on gas (from SNGPL) and fuel oil (PSO) for electricity generation, its net receivables stood at Rs24.3bn in 2QFY11 compared to Rs25.2bn in 1QFY11. Unlike Hubco and Kapco which are passing on the circular debt impact to their fuel suppliers, the situation is different for NCPL and NPL. This is due to the fact that both the companies have long-term agreements with private fuel supplier Shell Pakistan. With government not paying the full dues, their net receivables over the past 2 quarters have sharply grown up. That said, NPL and NCPL which had net receivables of Rs4.3bn and Rs4.1bn respectively as at Sept 2010, their net receivables have gone upto Rs6.0bn and Rs5.7bn respectively by the end of December 2010. The pattern of last 2 quarters shows that the government on an average paying 65-70 percent of the quarterly sales. However, with rising international oil prices there are chances that this ratio could reduce further.