EUR 4.42 For Business Accounts Only

Intermarket Pulse: Pakistan IPPs: Circular debt buildup may accelerate in near future

• The circular debt level has risen to near pre settlement level in FY13, as per the news flow. An upward reversal in oil price YoY coupled with higher FO and LNG based generation has inflated the energy payments for the power sector.

• We believe certain factors may worsen the circular debt situation going forward, as the government plans to add additional LNG and imported coal based power plants. Pre-elections, the GoP will likely stretch RFO based generation to limit blackouts. Furthermore, without the privatization of DISCOs, T&D losses will continue to add to the buildup.

• Even though we believe the government’s timeline of bringing additional 10,000MW capacity online by CY18 to be a bit optimistic, several projects which have received financial close indicates the power surplus may become a reality. For every 1,000MW excess capacity, the government would be expected to pay PkR10-12bn for power plants available and not dispatching electricity.