Chinese IPPs face default risk

They find it difficult to make debt repayment due to Rs340b outstanding dues

Shahbaz Rana May 25, 2022
A few months ago, Pakistan made a payment of Rs50 billion to the Chinese IPPs but blocked the processing of another Rs50 billion besides backtracking from its fresh commitment to open the Escrow account. Photo: file


Power projects of the China-Pakistan Economic Corridor (CPEC) face further risk of default on the upcoming debt repayments, as their outstanding dues have jumped above Rs340 billion amid Pakistan’s back-pedaling on fulfilling its contractual obligations.

Owing to the gravity of the situation, Prime Minister Shehbaz Sharif is expected to hold a meeting to find solutions to the chronic issues that have affected the pace of work on the multibillion-dollar initiative of Chinese President Xi Jinping.

Official documents showed that 11 Chinese power companies were facing serious issues due to the mishandling of their investment by the Pakistani authorities. Of these, eight independent power plants (IPPs) were waiting for the clearance of their cumulative dues of Rs340 billion to cover the cost of power generation.

One Chinese firm has also demanded compensation for the losses faced due to the obsolete power transmission system.

Despite their severe fiscal constraints, the Chinese power producers have not yet invoked sovereign guarantees that the government of Pakistan has extended to them, in case the power purchaser – Central Power Purchasing Agency-Guarantee (CPPA-G) – fails to make payments, sources told The Express Tribune.

The 1,320-megawatt Port Qasim power plant, set up by the Port Qasim Electric Power Company, faces the immediate challenge of clearing $83 million worth of debt, including $70 million in principal loan repayment on May 31, revealed the proceedings of a recently held meeting.

The government owed Rs91.2 billion to the Port Qasim power plant that has created serious liquidity problems for the firm. The plant, in turn, owes $140 million to the coal supplier.

The supplier has already stopped providing coal for the power plant due to the huge outstanding payments, company officials recently informed the Ministry of Planning and Development.

“Without urgent payments to restore coal supply, the whole complex will shut down shortly,” the company warned. Documents showed that the Port Qasim power plant also sustained losses of $153 million due to rupee devaluation.

“Since 2014, billions of US dollars have been invested, thousands of people have worked hard for seven years but today the company has no cash, low coal inventory, huge outstanding payments, a huge exchange loss, making coal supplier and operation and maintenance contract bankrupt and facing loan default soon,” complained the company officials in talks with the Pakistani authorities.

Documents showed that Pakistan owed Rs96.4 billion to the 1,320MW Sahiwal coal-fired power plant. The plant has been established by Huaneng Shandong Rui Group of China.

The company faces the issue of low payments for coal transportation and the royalty fee charged by the Port Qasim Authority.

A few months ago, Pakistan made a payment of Rs50 billion to the Chinese IPPs but blocked the processing of another Rs50 billion besides backtracking from its fresh commitment to open the Escrow account.

Finance ministry sources claimed that the International Monetary Fund (IMF) had raised certain objections to the payment of Rs50 billion to the Chinese without any budgetary provision. Receivables of the 1,320MW Hub coal power project, set up by China Power Hub Generation Company Limited (CPHGC), have increased to Rs71.6 billion, according to the official documents.

Since the fourth quarter of last year, the international coal price has skyrocketed and resultantly the company does not have funds to purchase the coal needed in the monsoon season, CPHGC informed the government.

Planning ministry officials said that CPHGC stated that the power units would have to be shut down in June and July due to the absence of imported coal and the lack of fiscal muscle.

The firm has demanded that Nepra approve a tariff true-up petition and also sanction 800,000 tons of coal import every year to resolve the outstanding issues.

CPPA-G also owed Rs45 billion to Engro’s 660MW Thar coal power project. The firm’s tariff true-up petition has been delayed by Nepra for the last two and a half years.

Owing to non-payments to the functional power plants, Sinosure, which backed the Chinese loans, has also delayed the financial close of the 1,320MW SSRL Thar coal block-1. This has delayed the project completion and the company’s request for extension in the commissioning date is also pending.

Hdyro China Dawood wind farm and power project is seeking $13 million in compensation from the Pakistani authorities for the losses that it is sustaining due to the transmission of electricity through a single transmission line. The firm’s outstanding dues have reached Rs2.7 billion.

The UEP 100MW power plant is also facing the default scenario due to its outstanding dues of Rs4.3 billion, according to the briefing given to the planning ministry. Owing to delayed payments, the company has not been able to clear its dues.

The 100MW Three Gorges wind power project is also experiencing similar problems due to its outstanding dues of Rs4.1 billion.

Chinese financial institutions are now reluctant to underwrite the Kohala power project, the 700MW Azad Pattan power project and the 300MW Gwadar coal-fired power plant. The Karot power project too is facing “pressures” due to a tax dispute with the FBR and cash problems arising out of the delayed commissioning of the project and currency devaluation.

The dues of the 900MW Zonergy solar power plant have increased to Rs10.4 billion while the dues of Matiari-Lahore transmission line project have surged to Rs14.5 billion.

Published in The Express Tribune, May 25th, 2022.

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