The Special Economic Zone (SEZ) at Rashakai, a priority zone under the China-Pakistan Economic Corridor (CPEC) framework, has applied for licences from the National Electric Power Regulatory Authority (Nepra) for the distribution and supply of electricity, but the issue remains unresolved.
In a recent meeting of the Cabinet Committee on Chinese Investment Projects (CCOCIP), the Power Division stated that Chinese investors were requesting for a “pool price” of electricity instead of industrial tariff.
However, the pool price would necessitate a government subsidy, resulting in an increase in consumer tariffs for SEZs and potentially discouraging investment and the relocation of industrial units. The CCOCIP directed the Power Division to resolve the electricity supply issue for the Rashakai SEZ in consultation with Nepra and the Board of Investment (BOI).
The cabinet body was briefed that the Chinese developers of Rashakai SEZ had proposed revisions in the existing incentives to attract Chinese businesses for the relocation of their industrial units to Pakistan.
The proposed incentives included customs duty exemption on imported raw material and semi-finished products for value addition, and changes in the policy of one-time exemption on the import of capital goods to exemption for a specified period.
The BOI informed the committee that the fiscal package had been shared with the Federal Board of Revenue (FBR), and certain tax and customs duty exemptions had been granted according to the Finance Act 2022.
The CCOCIP stressed the importance of developing a fiscal incentive package for CPEC SEZs based on the regional best practices and highlighted the significance of export-oriented industrial clusters for export growth.
The cabinet body was also informed that the Chinese government and independent power plants (IPPs) working under CPEC had refused to accept the amended revolving account amid the rising circular debt.
The outstanding dues of CPEC IPPs have exceeded Rs500 billion, posing a significant obstacle to the achievement of financial close for the 1,124-megawatt Kohala and 700MW Azad Pattan hydropower projects.
The Power Division informed the cabinet committee that the Finance Division and Central Power Purchasing Agency-Guarantee (CPPA-G) had established an amended revolving account, but it was not endorsed by the CPEC IPPs and the Chinese government.
Although the revolving account had been opened, the Chinese were hesitant to acknowledge it. The Power Division clarified that they were currently making payments of Rs4 billion per month, constituting 87% of the total payment, which was the maximum feasible amount under the current circumstances.
During discussions, the CCOCIP emphasised the necessity of adopting dynamic tariffs to stimulate electricity demand during winter months and fully utilise the available electricity resources. However, the Power Division highlighted the practical challenges, including evacuation issues through the transmission system, and hinted at plans to introduce a project for developing the transmission infrastructure.
The CCOCIP instructed the Power Division to devise a viable plan to boost electricity demand in the northern region during winter and transition from the consumption of gas to electricity.
It sought a detailed presentation on the overdue payments to CPEC IPPs from the Power Division.
The cabinet committee, after reviewing a summary, decided to continue implementing concrete measures to restore the confidence of Chinese and other investors.
Published in The Express Tribune, May 12th, 2024.
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