AKD Securities Limited – AKD Daily (May 12, 2022)

Karachi, May 12, 2022 (PPI-OT): Pakistan Power: The deepening Circular Debt crime

Since 2017, the circular debt for the Power sector has increased threefold to reach PkR2.5tn. Despite the payment of PkR210bn from the Govt. to the IPPs in the current fiscal year, the debt has risen by more than PkR300bn.

Since the circular debt leads to the GENCOs and IPPs being unable to pay their fuel suppliers, the entire energy chain is severely impacted as well, with circular debt reaching 1.6tn. PSO has trade debts of PkR380bn and payables of 322bn, with rising fuel prices leading to the increase. The circular debt for SSGC and SNGP was last reported to be PkR654bn, and is now approaching the PkR1tn mark.

Within the listed space, HUBC by far has the largest trade receivables and payables of the IPPs, with PkR90.8bn and 36.3bn respectively. KAPCO has the second highest levels of Circular Debt after HUBC, having PkR56.4bn of Receivables and PkR12.3bn in Payables. EPQL has PkR 9.8bn in Receivables and 4.7bn in Payables. Chinese IPPs have recently threatened closures if the PkR300bn owed to them are not paid.

Current high fuel prices for the power producers will increase the working capital requirement along with rising interest rates will elevate the circular debt crisis for the country. The quality of earnings of IPPs is severely affected and the capacity to pay dividends will remain compromised.

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