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Introduction:
The Finance Division in Pakistan has given its approval for the adjustment of advance payments to CPEC Independent Power Producers (IPPs), totaling Rs 20.726 billion. This blog post delves into the details of this decision, its significance in managing circular debt in the power sector, and its implications for the energy landscape in Pakistan.
Understanding Circular Debt Management:
Circular debt has been a persistent issue in Pakistan’s power sector, affecting its financial stability and cash flow. To address this challenge, the Federal Cabinet approved the Revised Circular Debt Management Plan for the power sector, which included a budget allocation of Rs 905 billion. Within this plan, an earmarked budget of Rs 180 billion was designated for IPPs stock payments.
Adjusting Advance Payments to CPEC IPPs:
The recent decision by the Finance Division allows for the adjustment of Rs 20.726 billion as advance payment to CPEC IPPs. This step aims to address the cash flow constraints and minimize the circular debt flow. The Finance Division has advised the Power Division to utilize these advance payments over the next five months of the financial year 2023-24. Monthly payments to CPEC IPPs will be shared with the Finance Division as per the prescribed format.
The Role of Pakistan Energy Revolving Account (PERA):
To facilitate the management of circular debt, the Pakistan Energy Revolving Account (PERA) was established at the State Bank of Pakistan. The PERA had an initial allocation of Rs 50 billion for the current fiscal year. The Power Division, under the Revised Circular Debt Management Plan, proposed utilizing the available balance of Rs 18 billion from PERA, along with an additional transfer of Rs 2.726 billion, to address the needs of CPEC projects.
ECC Approval and Way Forward:
The proposal put forth by the Power Division and supported by the Finance Division was approved by the Economic Coordination Committee (ECC). The ECC emphasized the utilization of the Pakistan Energy Revolving Account for CPEC projects, allowing the adjustment of advance payments. The relaxation of monthly drawl limits enables the complete utilization of the allocated amount before June 30, 2023.
Conclusion:
The Finance Division’s approval of advance payments to CPEC IPPs marks a significant step in managing circular debt in Pakistan’s power sector. This decision aims to address cash flow constraints, minimize circular debt flow, and ensure the sustainability of the energy landscape. By utilizing the Pakistan Energy Revolving Account, the government is taking proactive measures to tackle circular debt challenges and foster a more stable power sector in the country.
Note: The circular debt situation and related developments are subject to change. Please refer to official sources and updates for the most recent information.
