The Pakistan Federal government has put in a formal request with China to various loans amounting to almost $17 billion on account of investments in the power sector. For the past few months, top Pakistan leaders, including Prime Minister Shehbaz Sharif, have repeatedly visited China but failed to convince the Chinese leadership on this count. Federal Finance Minister Mohammad Aurangzeb is in Beijing at present for pleading Pakistan’s case with Chinese lenders as also leaders again.
Representatives of Chinese companies have said that the matter of whether to restructuring the energy debt should be decided between the Chinese banks and the Pakistani authorities. They also ruled out the possibility of renegotiating their own terms and conditions regarding the power purchase agreements (PPAs) signed years ago in 2015, according to reports in The Express Tribune.
High power bills are a major source of unrest among public all over the country and the Pakistan government apparently wants to bring down tariffs. Accordingly, it has prepared a proposal for extension in energy debt repayments to China. The extension sought for repayments is eight years in case of most loans which were taken to execute China Pakistan Economic Corridor (CPEC) projects. Presently, the loan repayment period is 10 years in most cases but the Pakistan government wants that the loans be returned in 15 to 18 years.
If accepted by the Chinese authorities, the cumulative impact of these concessions could be around Rs 6 to Rs 7 per unit reduction in the prices. The impact of just the Chinese power plants is Rs 3 to Rs 4 per unit, according to the Finance Ministry.
Finance Minister Aurangzeb and Energy Minister Sardar Awais Laghari met with China’s finance minister and the President of China Export and Credit Insurance Corp (SINOSURE) to discuss the issue. SINOSURE had insured the loans Chinese companies took from Chinese banks to set up projects in Pakistan.
Besides requesting extension for repaying energy debts, the Pakistan delegation also wants to convert US dollar-based interest payments to Chinese currency. It also wants reduction in overall interest rates for both CPEC and non-CPEC Chinese-funded projects, according to ministry officials.
The officials did not say anything on whether China has agreed to extend the loans or reduce the interest rates. Incidentally, Pakistan has repeatedly breached CPEC agreements by failing to make timely payments for power purchased from the Chinese plants. This has made SINOSURE hesitant to fund a new coal-fired power plant and two hydroelectric plants.
The main reason for the surge is the Power Division’s failure to settle at least 90 per cent of the monthly claims from these Chinese power projects as mutually agreed. Under the agreement, Pakistan was to create a revolving fund with 21 per cent of the power invoices to protect Chinese firms from the circular debt crisis. Instead, it wants to now pass on the burden and effects of its own mismanagement of the power sector to the Chinese power companies.
On behalf of the Chinese power companies, the Chinese government has repeatedly raised the issue of pending payments with Pakistan through diplomatic channels. Earlier this week, the Chinese companies expressed opposition to any plans to reduce their profit margins. Presently, at least of 21 Independent Power Projects (IPPs) are going on in Pakistan under the CPEC, including eight projects of coal, four projects of hydel power, eight of wind power and one transmission line.
The non-payment of dues to the Chinese power companies may impact many ongoing power projects also as they may get delayed beyond anticipated dates. Three of the hydel power projects likely to be impacted are the 720 Karot Hydropower Project located 74 km upstream of Mangala dam, 700 MW Azad Pattan Hydropower Project and the 1,124 MW (281×4) Kohala project, all three on the Jhelum river.
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