China agrees to reschedule $2 billion debt

ISLAMABAD:

China has agreed to reschedule over $2 billion publicly guaranteed debt of Pakistan for a period of two years, providing a major relief to the government that is in the process of rebuilding foreign exchange reserves through fresh loans and rolling over maturing debt.

The Economic Coordination Committee (ECC) of the Cabinet on Thursday approved the revised terms of the agreement reached between Islamabad and Beijing, according to senior Pakistani officials.

Finance Minister Ishaq Dar chaired the meeting.

Pakistan has built two nuclear power plants in Karachi that have a combined generation capacity of 2,117 megawatts. The total cost of the plants is $9.5 billion, including the $6.5 billion financing from China. The loan was extended by the Export-Import (Exim) Bank of China.

Of $2 billion, over $625 million was maturing in this fiscal year that will now be paused. The $6.5 billion is a publicly guaranteed debt and over $2 billion repayments were maturing in two years that China has agreed to make a pause on, according to the senior officials.

China has time and again helped Pakistan meet its debt obligations through the provision of new loans and rollover of the existing debt. China prematurely refinanced its $1.3 billion commercial loans in June, which helped Pakistan avoided a default on its international debt obligations during the period when the International Monetary Fund programme was stalled.

After signing of the new IMF programme, Pakistan’s gross official foreign exchange reserves have bounced back to $8.7 billion – up from the critically low level of $4.5 billion before the IMF deal.

The Ministry of Finance did not officially make a statement about the ECC’s stamp of endorsement to the revised agreement with China.

Also, the ECC also approved a Rs200 million technical supplementary grant in favour of the Special Investment Facilitation Council (SIFC).

The civil-military hybrid council has been established to attract investment from the GCC and other countries in the defence, agriculture, mineral, IT and energy sectors. The SIFC Secretariat has been established at the PM Office and officers from various ministries have been posted in the SIFC to undertake foreign investment initiatives.

“The SIFC Secretariat has not yet become operational due to non-allocation of the budget, which is imperative for handling day to day activities of the Council,” the ECC was informed.

The council had requested a Rs200 million supplementary grant along with lifting a ban on purchase of furniture.

The ECC considered a summary of the Ministry of Information regarding charging electricity rates from cinema houses. In order to revive the film industry in Pakistan, the ECC approved the proposal that cinemas may be charged electricity as per rates admissible to industry.

The ECC also considered a summary of the Ministry of Commerce regarding the export of vegetable ghee/cooking oil from export processing zones to Afghanistan through land route.

The ECC also considered a summary of the Ministry of National Food Security and Research regarding the revision of cess rates of tobacco for the year 2023-24. The ECC approved revised cess rates for the year 2023-24.

The ECC approved increasing the cess rates on various varieties of tobacco.
It increased the cess on flue curved Virginia by 3% to Rs9.3 per kilogramme, on dark air cured tobacco to Rs5.70 per kg, while patta to Rs4.38 per kg, burley to Rs9.7 per kg and sun cured Virginia to Rs6 per kg. The government will get additional Rs115 million due to increase in the cess rates, which the food ministry said was required to pay for Rs113 million additional cost of salaries due to increase in salaries in the budget.

The ECC deferred a summary that the Petroleum Division has proposed to resolve the issue of expired lease of Sui mining.

The summary was deferred with the direction that the government of Balochistan should be taken on board.

The original lease of the Sui mining had expired in 2015. The rules were silent about any further extension. A memorandum of agreement was signed between the Petroleum Division and the government of Balochistan in 2016 to find a way forward. Subsequently, the government of Balochistan refused to implement the agreement.

Prime Minister Shehbaz Sharif had set up a committee in June last year to resolve the dispute. The committee recommended making payments of Rs60 billion on account of lease extension bonus plus production cost and for social welfare.

The committee had proposed that of Rs60 billion, Rs24 billion will be contingent payments that will be made subject to improved collection by Pakistan Petroleum Limited (PPL) from the Sui gas companies on proportionate basis and increase in gas prices for consumers.

The committee recommended that the PPL should pay Rs12 billion in terms of lease extension bonus of the total commitment of Rs54 billion. The remaining payments will be made in quarterly tranches of Rs6 billion per quarter till June 2025.

The Petroleum Division will grant a development and production lease and sign a Sui Field Petroleum Concession Agreement with the PPL for 10 years starting from 2015 to 2025 before the payment of first instalment.

The Petroleum Division will engage the government of Balochistan after payment of Rs12 billion by the PPL for its concurrence to the draft concession agreement and development and production lease plan.

But the ECC on Thursday did not endorse this arrangement.