Govt expedites payments to China

Pakistan promises to fully clear invoices for power projects since FY24

ISLAMABAD:

Pakistan has reduced payables for Chinese energy projects to $1.4 billion, or Rs391 billion, after promising to at least fully clear fresh invoices, in a move that will either require an additional budget or slow down payments to other plants.

By the end of first quarter of the current fiscal year, the arrears of China-Pakistan Economic Corridor (CPEC) power projects had been slightly reduced to Rs391 billion, according to officials of the Ministry of Energy. The amount was Rs10 billion, or 2.5%, less than the outstanding liabilities at the end of fiscal year 2024.

In dollar terms, the liabilities were equal to $1.4 billion, which had peaked to $1.8 billion less than a year ago due to fewer payments to these plants.

After the security of Chinese nationals, the non-payment of energy cost and return on equity to Chinese investors is a major concern of Beijing.

During the last meeting of the Joint Cooperation Committee (JCC) – the highest decision-making body of CPEC, Pakistan promised that "efforts will be made to achieve 100% of tariff settlement for the invoices raised by COD projects since FY2024".

Pakistan was clearing, on an average, about 88% of the invoices generated by 17 power plants having generation capacity of 8,020 megawatts. Raising this ratio to 100% will require significant additional resources.

However, not enough allocations have been made in the budget to fulfil the promise. Instead of setting up a revolving fund to save Chinese plants from circular debt, Pakistan has opened a revolving account with Rs48 billion in annual allocations.

Chinese investors were also facing serious problems in receiving dividends on their investments of $16.3 billion. Although the central bank claims it has cleared all the outstanding dividend payments as of end-June 2024, the Chinese companies claim that they have not received these payments.

About 14 power projects with installed capacity of 8,020MW are operational under CPEC with a total investment of about $16.3 billion.

An 870MW hydroelectric power project with an investment of about $1.7 billion is also under construction, which is expected to achieve commissioning date (COD) next month. Three power plants with installed capacity of 2,100MW and a total investment of about $4.2 billion have not yet achieved financial close.

Pakistan has been trying to convince China to provide loans to these three plants but Beijing is reluctant until full resolution of the issue of delayed payments to the already operational power plants.

China was informed that progress on the Azad Pattan hydropower project, Kohala hydropower project and Gwadar coal-fired power plant had been lagging behind in a big way, particularly in terms of financial close, according to minutes of the 13th JCC meeting.

However, it is Pakistan that has breached CPEC agreements by failing to make timely payments for power purchase from Chinese plants. This has made Sinosure hesitant to fund a new coal-fired power plant and two hydroelectric power plants.

Power ministry documents showed that as of September 2024, the outstanding dues payable to Chinese power plants amounted to Rs391 billion, down Rs10 billion, or 2.5%, from the previous year.

Pakistan still owes Rs80.2 billion to the imported coal-fired Sahiwal power plant, Rs66.3 billion to the coal-fired Hub power project, Rs82 billion to the coal-fired Port Qasim power plant and Rs62.5 billion to the Thar coal project.

Islamabad has also been trying to convince Beijing on energy debt restructuring. But China did not agree to sign any memorandum of understanding on energy debt restructuring during the visit of the Chinese prime minister this month.

In background discussions, Chinese companies have expressed their opposition to any plans to reduce profit margins or renegotiate the 2015 power purchase agreements.

Details show that receivables for other projects were also significant, with Engro PowerGen plant receivables at Rs38.8 billion, Matiari-Lahore Transmission Line project receivables at Rs16.6 billion and Karot power project receivables at nearly Rs12.6 billion by the end of last month.

Thar Coal Energy Limited's payables shrank to Rs2 billion, ThalNova's to Rs1.6 billion and UEP power plant's receivables were Rs5.5 billion.