Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

Corona covering IST half of CY 2020 is now contracting though cases are there that require precautions. However compared to some countries where even on a single case they went for complete lock down, in Pakistan governments showed mixed reactions. With emergence of vaccine from Russia and China now hopes are even higher.

For providing cheap electricity to consumers on a sustainable basis seems to be the government’s top priority announced recently.

By enhancing the share of renewable energy to 20 to 25 per cent in the overall energy mix by 2030, would help to reduce dependence on petroleum fuel and the cost of power production.

12 IPPs set up under the 2002 power policy and an association representing about two dozen WPPs had already signed memorandums of understanding (MoUs) with the government in this respect.

Since most of the IPPs remained unutilized for almost nine months last year and are on the last leg of their terms, the total savings would amount to about 5pc of the total energy purchases that last year stood at about Rs775 billion or about Rs35-40bn.

All projects will now work on ‘take and pay bases

There is also  talks going on for extending maximum relief through some alternation in the PPAs of the IPPs (coal based power plants and RLNG based power plants) installed under and outside CPEC umbrella installed by Chinese companies under power policy 2015.

 Under material changes in PPA with IPPs established under 2002 power policy, there will be no 15 percent profit with US dollar indexation for local IPPs, rather they will get 17 percent profit with Pak Rupee Indexation. However, for foreign-funded IPPs, the profit would stay with US dollar indexation but it will be reduced from 15 percent to 13 percent and in some cases 12 percent depending upon the power policy under which they were installed.

In this regard the crucial question is that IPPs want the government to first come up with a mechanism to pay their dues amounting to over Rs 600 billion with time frame prior to inking the final agreements.

Late payment surcharge to be paid by the government to the IPPs, which was earlier Kibor plus 4.5 per cent, was dropped to Kibor plus 2 per cent only.

Further The Supreme Court (SC) has also announced its decision pertaining to Gas Infrastructure Development Cess (GIDC), directing recovery of Rs 417 billion GIDC payables from the industries.

GIDC was imposed by the government in December 2011, to raise funds for development of gas infrastructure in the country. GIDC Act provides legal framework which allows government to levy and collect the cess from gas consumers other than the domestic sector consumers.

Regardless, the decision announced implies significant cash outflow, of Rs20 billion to Rs60 billion for fertilizer companies.

In terms of earnings impact, potential bridge financing to pay accrued GIDC payables and absence of other income may result in negative earnings impact (most significant for Fauji Fertilizer Company (FFC), due to loss of other income on short term investment and Fauji Fertilizer Bin Qasim Limited (FFBL), due to liquidity issues and potential borrowing). Cash outflow may thus limit payout ability in short to medium term.

As per an earlier agreement between the government and the CNG sector, the latter was directed to pay Rs12 billion in two equal installments within three months pursuant to the GIDC (Amendment) Bill 2018 as full and final liability payment of GIDC arrears between January 2012 to May 2015.

Similarly, the industries may also be given a reasonable timeline for GIDC payments, which will in turn direct the impact on the sector’s payout ability in short to medium term.

Largest cash out flow would be witnessed from fertilizer companies to the tune of Rs110 billion, Fertilizer companies were sitting on huge cash amounts (excluding FFBL) and were earning substantial amount of interest income on their amount invested in T-bills and other government papers.

Due to this decision, companies would be entitled to submit due amount to the government, which will also hurt their recurring other income. Decision on Even (new plant of EFERT) is still unclear. If the decision also implies on Enven plant then the company may witness additional cash outflow of Rs35 to Rs38 billion (which so far has not been provided for). The company will need to raise debt to repay these government dues.

So let us hope that with these gains government would come up with clear policies on health sector, prices of electricity for consumers and to bridge some gap of deficits from GIDC recoveries.


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