Bid to Resolve Debt Problem of Private Power Producers

EghtesadOnline: Talks are being held to help address the financial problems of private power producers who built plants with forex loans from the National Development Fund of Iran (sovereign wealth fund) and are unable to repay.

News ID: ۷۵۱۶۰۲

29 November 2020

The Energy Ministry is trying to convince the fund to accept the unpaid debts in rials instead of foreign currency, the minister said.

“We are aware of their financial crises. The ministry is doing all it can to help settle their debts in rials with easy installments,” Reza Ardakanian was quoted as saying by Barq News.

NDFI officials have agreed that the private sector pay the mounting debt in long-term installments (in foreign currency) “but this is not enough as most companies are unable to repay unless the fund accepts local currency.”

Unprecedented rise in forex rates over the past 15 months has added huge financial costs on private electricity producers pushing most near insolvency.

Following government appeals in 2014 to private firms to play a bigger role in the power production, NDFI gave between $300 million to $400 million to private companies to construct thermal power stations, the minister recalled.

At that time the dollar was worth 40,000 rials. Now it is at least six times higher, but electricity tariffs are the same as in 2014!

Private power plants built with loans are obliged to repay at least $65 million a year ($=25,000 rials) and this is not possible, he concurred.

Prohibitive Rise

For instance, a company that borrowed $200 million must repay $1.2 billion to the lender and many companies are simply unable to pay such prohibitive rates. Annual power generation in Iran is 75,000 MW and average annual export is 10 million kilowatt hours largely to Iraq, Pakistan and Afghanistan.

Referring to other moves to help the private sector handle its mounting financial difficulties, Ardakanian said “industrial units which need more than 5 million kilowatt hours of power per annum can buy directly from private suppliers via the energy bourse”.

As per a new government directive which took effect in October, the state-owned Iran Power Generation, Transmission and Distribution Management Company (Tavanir) henceforth will not be the sole buyer of electricity from private companies.

Energy Bourse

Prior to this, private companies were not allowed to sell electricity (directly) and their output had to be delivered to Tavanir. This strange policy added to the problems because private firms could not generate enough income by selling power via the Energy Bourse in Tehran.

As per the new rules, after a contract is signed between a private power producer and private manufacturing unit, Tavanir will only play a regulatory role and help transfer electricity from the power station to end user(s).

The Energy Ministry will provide infrastructure (cables, distribution system, etc.) but delivery will be by retailers and consumers will not pay the bills to the state-owned company.

Following years of futile bargaining the government has come to the conclusion that trade in electricity should be the function of the Energy Bourse and Tavanir take a back seat after decades of monopoly in the key sector.

Energy experts including Mohammad Parsa, head of the Federation of Iranian Energy Exports Industries, believe exporting electricity can be more profitable if private firms are allowed to conduct their business without unhelpful government meddling.

Installed power production capacity has risen 23% since 2009 and is near 80 gigawatts, but exports have decreased in the past decade, Parsa said.

According to the ministry, Tavanir sold 8.6 billion kilowatt hours of power to neighbors including Afghanistan and Pakistan in 2009 when installed power output was 49 GW. Now capacity has climbed to 80 GW but exports have declined 27% to 6.2 billion kilowatt hours. It is not clear why exports had plunged.

Parsa said diplomatic missions should act as facilitators and help find the best possible channels between private firms and potential foreign clients.