As Pakistan is set to enter into 25-year power purchase agreements with Chinese companies, foreign power producers have expressed reservations over the existing mechanisms that led to piling up of over Rs300 billion of circular debt.
During recent meetings with Pakistani authorities, Chinese investors showed their reservations over non-resolution of circular debt, according to the Ministry of Planning and Development officials. The issue of payment modalities of power purchase agreements also came up for discussion during a meeting of Steering Committee on Energy Projects under China-Pakistan Economic Corridor (CPEC).
The meeting was chaired by Minister for Planning and Development Ahsan Iqbal and attended by Punjab Chief Minister Shahbaz Sharif, Federal Minister for Water and Power Khwaja Asif and Secretary Planning Hasan Nawaz Tarar.
The high level huddle decided to call Secretary Finance Dr Waqar Masood in the next meeting to get the views of the finance ministry that is reluctant to acknowledge over Rs300 billion circular debt in its books.
Due to the ministry’s dilly-dallying over payments to the Independent Power Producers, almost all the producers have already sent notices to the federal government, warning to call the sovereign guarantees if it did not clear the outstanding dues.
The official told The Express Tribune that Pakistan and China will sign Power Purchase Agreements on August 4 in Beijing. They added the agreements will be for 25 years. The government will give an upfront tariff to the power producers and the producers will be responsible for engineering, procurement and construction activities.
The officials said in order to allay Chinese investors’ concerns the government was also formulating special rules and regulations aimed at finding a way to avoid application of Public Procurement Regulatory Authority (PPRA) rules on these contracts.
The PPRA rules are aimed at ensuring transparency in public contracts but often become hurdle in speedy implementation of agreements.
The steering committee on energy has been constituted by Prime Minister Nawaz Sharif after he found that the activities of various ministries were not synchronised which could delay the implementation of energy projects initiated under the Pak-China corridor.
The steering committee will regularly review progress and find ways to remove obstacles that may hinder work on critical projects like integrated plan for generation, transmission and distribution and an integrated plan for transportation of coal across the country. The problem of an obsolete transmission infrastructure became severe during the past few days, leading to long hours of load- shedding across the country.
The steering committee will be dealing with a seven-point agenda that includes to review feasibility studies of energy projects under CPEC; demand and supply framework of ongoing and new projects, integrated plan for generation, transmission and distribution; payment modalities of power purchase agreements; curtailing power losses, integrated coal logistics plan for coal power projects and more importantly the Chinese investors concerns regarding security and PPRA rules.
Iqbal said that CPEC was a key initiative which will help Pakistan in meeting the energy shortfall. “China is keen on pursuing the projects initiated under the corridor,” he said, “the government has to deliver results according to strict timelines and work on full capacity to avail this historic window of opportunity.”
Iqbal stated that during his recent visit to China the delegation sensitised Chinese authorities to prioritise Pakistan’s energy projects, according to a handout issued by the Ministry of Planning.
Under the corridor, the government plans to install 66,00 megawatt projects at the Gaddani Energy Park, the Quaid-i-Azam Solar Power Park in Punjab, the Karachi-Lahore Railways Project (ML-I) and coal-based power projects at Port Qasim.
Iqbal stressed on the integration of work to bring about synergy. He called for an integrated plan for coal logistics for energy projects and also directed the committee to address observations of Chinese authorities.
“Generation of electricity is not the only issue but the transmission and distribution mechanisms are becoming major irritants.”
Iqbal also constituted a working group to address the issues related to the transportation of coal from Sindh to Punjab.
Published in The Express Tribune, July 13th, 2014.
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COMMENTS (14)
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Strategic assets are very expensive.
@Ammar: Then PPP and PMLN would not have been able to rip-off the Pakistani nation !!!
@Frank: Sir u could not understand his point. ..the basic problem arised from the shift in policy to Diesel/Gas... we would've been in better condition if the Hydel or Coal policy would have been formulated. ..
@Frank: The electricity it produces is twice as expensive as coal backed generators.
@Frank:
"The Chinese investors are complaining about the PML-N government’s inability to control the circular debt."
Just think about it clearly. Do the Chinese, or for that matter any foreign investors, really care about Pakistan's circular or square debt? Not really. All they want is a guaranteed return on their investment. They are not going to invest if they can't get back their investment principal and profits.
@Shuaib: 300 billion is in a year AFTER The 500 billion of PPP which was accumulated over 5 years was wiped out by simply printing cash. So PPP's circular debt was 100 billion a year (total 500 billion in 5 years). This 300 billion in a year actually represents a tripling of circular debt NOT a 40% reduction as you seem to think.
I thought PPP government was worst in terms of governance and ability. Now it seems, worse is yet to come!!
H Chaudhry:
What an appalling comment by someone who obviously lacks integrity. The Chinese investors are complaining about the PML-N government's inability to control the circular debt. Where does the PPP government of the 1990 come into this?
ET moderators please allow my comment through and don't let this disgraceful remark by H Chaudhry go unanswered.
PML(N) government is creating another set of white elephant.Electricity will be more costly and still unavailable to common consumers.
I am happy that they have reservations because it will make the matter more serious in the eyes of the Government. If Rs. 300 billion is being piled up over a year it means that this government has reduced annual circular debt collection by 40% as it was Rs. 500 billion last year which was piled up in a year of PPP rule. Another 40% decrease will lower the annual pile up to Rs. 180 billion, so we need a much larger decrease of 50-70%. Otherwise foreign investors will still doubt Pakistan's ability to deliver. Which is good because it means the Government will have to strive to deliver.
If they have any sense they will pull out. The GoP can't be trusted. Not in the least.
Before installing coal fired power plants first bring the Railways on track because coal for power can be transported by rail only one 1200 MW plant consumes full train of coal in a day on this side our Govt has installed many plants and now it is difficult to manage the ash produced by these plants, if solar plants are installed it will be better.