(PkRevenue.com) – Engro Powergen Thar Private Ltd (EPTL) has made an urgent appeal to the Central Power Purchasing Agency Guarantee Ltd (CPPA-G) for the immediate settlement of its outstanding dues amounting to Rs65 billion.
The company is facing a severe liquidity crisis that threatens its ability to meet its imminent financial obligations, including those to lenders and suppliers, as detailed in an official letter.
In a letter to CPPA-G, EPTL highlighted the gravity of its financial situation. “We are facing a severe liquidity crisis, imperiling our ability to meet imminent obligations to lenders and suppliers (including fuel suppliers),” the letter stated. At the beginning of April, EPTL had informed CPPA-G via letter (ref EPTL-2642-04/2024) about the impending debt servicing obligations for both EPTL and Sindh Engro Coal Mining Company (SECMC), which are due at the end of May. The letter underscored the need for at least Rs42 billion to manage these obligations and operational requirements.
EPTL operates as a significant player in Pakistan’s energy sector. It is a top-3 Merit Order plant that operates at high load factors during peak summer periods, playing a crucial role in providing a stable thermal base load throughout the year. The plant’s importance in maintaining the country’s power supply underscores the critical nature of the financial support it requires. Despite the pressing need, EPTL has received only Rs17 billion against its request for a total disbursement of Rs350 billion to power producers during this time.
“This is not even sufficient to fulfill the debt requirements of EPTL and SECMC. This situation represents an unprecedented crisis for us, with our urgent plea to avert potential debt default being not given due importance,” the company lamented in its letter.
EPTL’s situation is exacerbated by the surge in outstanding dues from CPPA-G, which have climbed to Rs76 billion, with Rs65 billion being overdue. This marks a significant increase from a year ago when, on May 31, 2023, the overdue receivables stood at Rs39.5 billion. The staggering rise in overdue receivables has led to a decrease in EPTL’s recovery percentage, dropping to 86% compared to the historically maintained 89 to 90% for China-Pakistan Economic Corridor (CPEC) projects by CPPA-G. For 2024, the year-to-date (YTD) recovery percentage has plummeted to a mere 75%.
The potential repercussions of this financial crisis are far-reaching. If CPPA-G does not settle the outstanding dues promptly, EPTL could default on its debt obligations. This default could lead to severe operational disruptions, affecting not only the company’s ability to supply power but also impacting the broader energy sector in Pakistan. The stability of the power grid during peak demand periods, particularly in the sweltering summer months, could be compromised.
Moreover, a default would damage the credibility of the power sector, making it harder for other power producers to secure financing and investment. This could result in a vicious cycle of underfunding and operational inefficiencies across the sector.
EPTL’s letter to CPPA-G is a clarion call for immediate action. The company has laid bare the criticality of the situation, emphasizing the need for substantial financial support to avoid a cascading crisis. The appeal highlights the importance of maintaining financial stability within the power sector, especially for key players like EPTL that are integral to ensuring a reliable power supply.
The power sector’s financial health is vital not just for operational stability but also for fostering investor confidence. Timely settlement of dues by CPPA-G would not only address the immediate liquidity crisis faced by EPTL but also signal a commitment to maintaining financial discipline and support within the sector.
The situation faced by EPTL is indicative of broader challenges within Pakistan’s energy sector. Financial mismanagement, delayed payments, and inadequate support mechanisms have long plagued the industry. Addressing these systemic issues is crucial for ensuring long-term sustainability and efficiency.
To prevent such crises in the future, there needs to be a concerted effort to reform payment mechanisms, enhance financial transparency, and ensure timely disbursements. Strengthening the financial frameworks governing the power sector can mitigate risks and foster a more resilient energy infrastructure.
The urgent appeal by Engro Powergen Thar Private Ltd (EPTL) to CPPA-G underscores the critical need for immediate financial intervention to prevent a potential default. With outstanding dues reaching unprecedented levels and the company facing a severe liquidity crisis, the stability of Pakistan’s power supply hangs in the balance. Timely action by CPPA-G is essential to avert a cascading crisis that could have far-reaching implications for the entire energy sector. Addressing these challenges will require not only immediate financial support but also long-term systemic reforms to ensure the sustainability and efficiency of Pakistan’s power industry.
