Government to pay Hubco bills in cash and bonds

KARACHI: The government is expected to settle overdue payments from independent power producer Hubco in cash and bonds, according to a filing with the exchange.

Hub Power Company Limited (Hubco) and the Central Power Purchasing Agency (CPPA) initialed the agreement under which the CPPA should pay Hubco’s claims in two installments of 40% and 60%, respectively, within 30 working days, declared a notice to the stock exchange. The initial 40% settlement is expected to take place in the form of one-third in initial cash and the remaining two-thirds in the form of financial instruments – Pakistani investment bonds and sukuk.

Similarly, the second installment of 60% should be settled after 6 months in the same proportion as the first installment.

The draft agreements will soon be presented to the federal cabinet. The terms of the agreement are subject to the approval of Hubco’s cabinet and board of directors.

Additionally, Hubco has agreed to reduce fixed operating costs by 11% while maintaining the existing indexing mechanism. For project company equity, the PKR/USD exchange rate was pegged at Rs 168.6/USD and consumer price inflation in August. However, the existing arrangement under the current power purchase agreement will apply to future billing until the PKR/USD exchange rate exceeds Rs168.6/USD.

In addition, Hubco and the government will do their best to secure the early termination of Hubco’s Baseload Power Purchase Agreement (PPA). The government will save on capacity payments, which must be paid to Hubco for the remaining period of the PPA, while Hubco will get a monetary benefit and get rid of the plant, which is no longer needed in the network.

Last week, Narowal Energy Limited – a wholly owned subsidiary of Hubco, also initialed an agreement with the CPPA, committing the rate of return on equity to rise from the current rate of 15% in USD to 17% in PKR, without USD future. USD indexing and equity will be converted to PKR using the PKR/USD exchange rate of 148. The plant will transition to a take-and-pay basis following the implementation of a competitive trade agreement.

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