PC suggests finance ministry to relax rules for power projects

Islamabad: The Planning Commission has recommended that the Ministry of Finance relax rules for issuing sovereign guarantees for picking up payment obligations for new projects in energy sector to overcome gas and power crisis. However, the MoF relaxed the rules for any energy sector project subject to clearance of the Economic Coordination Committee (ECC).

Source said the Energy Security Action Plan 2005-10 and Liquefied Natural Gas (LNG) Policy 2006 bars the government from issuing sovereign guarantees for any power sector project. However, public sector entities have been continuously approaching the government for sovereign guarantees to woo investment for gas and power sector projects.

The public sector entities have been informing the federal government that investors, particularly foreign investors, were reluctant to sign agreements for various energy sector projects without having sovereign guarantees for the government for picking up the payment obligations in case of any default or financial crisis of any local party.

The financial crisis Pakistan's power sector projects confronting these days has badly shaken the investor confidence. They apprehend that their project can also face a similar situation at any point in time in future for non-payment of dues by their clients. They feel that sovereign guarantee for picking up the payment obligations can save their investment.

In its office memorandum issued to the Ministry of Petroleum and Natural Resources and Ministry of Water and Power, Planning Commission said: 'The LNG Policy 2006 and 'Energy Security Action Plan 2005-10,' restrict the government from issuing sovereign guarantees for picking up payments obligations for any project.

However, in order to overcome the energy crisis Planning Commission, in exception to the policy concurs, recommends the government to relax the rules for issuing sovereign guarantees and help the public sector entities to complete projects relating to energy sector on top priority basis.'

Pakistan is facing serious energy crisis and despite serious efforts at the top level, the government has failed to bring in more projects for power generation and likewise public sector companies are facing difficulties in attracting investment for oil and gas sector.

The foreign investors quote Hub Power Company (Hubco), Wapda and some other major power sector companies which are right now facing serious financial problems due to non-payment of dues by their clients while discussing modalities with the public sector organisations for new projects. Pakistan's public and some private sector companies are facing difficulty in coming out of the financial crisis.

The public sector companies officials who are negotiating different projects for gas import of power generation are of the view that the Planning Commission has taken a big stride by suggesting the MoF to relax the rules for sovereign guarantees and now one can hope that it would work to help Pakistan have new projects to overcome the energy crisis.