Karachi nuclear plants: Govt keeps Chinese loan outside budget books

Beijing has so far released $269m out of a total of $6.5b for the project.


Shahbaz Rana February 26, 2015
Beijing has so far released $269m out of a total of $6.5b for the project.

ISLAMABAD:


For the past one year, Pakistan has been unable to find solution to a simple accounting problem: how to handle a $6.5 billion Chinese loan for two Karachi nuclear power plants having a combined generation capacity of 2,117 megawatts.


As a result of its inability to deal with a normal transaction, the government has so far kept a significant part of spending on the project outside the budget books, understating development spending by the same amount.

Out of the $6.5 billion, China has so far released $269 million or Rs27 billion for carrying out work on the nuclear power plants, which the government did not book against development spending, showed documents of the Ministry of Planning and Development and the Ministry of Finance and Economic Affairs.

This could invite attention of the International Monetary Fund (IMF), having adverse implications for the $6.6-billion bailout programme.

Apprehensions are growing that any further delay in resolving the issue could irritate the Chinese government as well, endangering future funding for the project, said officials who are involved in talks with China. At the heart of the problem is the Ministry of Finance’s reluctance to add the huge bill to the federal Public Sector Development Programme (PSDP) aimed at achieving the budget deficit targets agreed with the IMF, said officials who spoke on condition of anonymity.

The finance ministry decided to keep the $6.5-billion foreign financing component of the $9.5-billion project outside the PSDP after signing two loan agreements with China early last year. China signed the first loan of $4 billion on January 14, 2014. It released $26.5 million during the first half of the current fiscal year, which the government did not book as development spending.

The second loan agreement of $2.65 billion was signed on February 19 last year and China released $242.8 million in the first half of the current fiscal year, according to official documents. This spending is also not reflected in the budget.

The Pakistan Atomic Energy Commission (PAEC), which is handling the nuclear power plants, has recently sent a fresh withdrawal request to the Chinese authorities, as uncertainty over the mode of financing remains, said officials.

The Chinese funding has so far kept the project on track but work in future may get affected, warned the officials. Unlike the foreign loan component, the government booked Rs12.2 billion in the budget that it spent from its own resources during the current fiscal year, showed the planning ministry documents.

China had extended the loans on concessionary terms and if the government insisted on keeping the project outside the PSDP, Beijing may not be able to continue the loans on the same terms and conditions, said another official who recently interacted with the Chinese authorities.

The Ministry of Finance wanted to set up a special purpose vehicle outside the budget to obtain and repay the Chinese loan, he added. It has applied similar tactics in the past to understate energy subsidies.

If China agrees to the proposal, the interest rate will be more than double the existing rate, the official said. It will also require permission of the Chinese Council of Ministers to amend the agreement, which is a time-consuming exercise.

To resolve the issue, many back and forth meetings were held between Finance Minister Ishaq Dar, Director General Strategic Plans Division and the PAEC.

In the last meeting, it was decided that if China did not agree to finance the project outside the budget, the government would bring the $6.5-billion foreign component into the PSDP, said Rana Assad Amin, spokesman for the finance ministry.

He said there were huge implications of adding the project to the PSDP, as estimated annual spending on the nuclear power plants was in the range of Rs100 billion to Rs110 billion. However, an official of the Ministry of Planning said that given the size of the project, it would be difficult to add the foreign component to the current year’s PSDP. He said it could be added in the next year’s development programme.

Published in The Express Tribune, February 27th, 2015.

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COMMENTS (3)

zara haq | 9 years ago | Reply My nick has been stolen. So any comments by Zara is not my own. Zara haq is my nick.
Khadija | 9 years ago | Reply Pakistan has been moving towards the right direction now, development projects are happening but fragile economy is the main hurdle. Hoping that government with the passage of time will align all the accounting of projects. Karachi nuclear power project is important for Pakistan to overcome the energy crises. Government must take it seriously!
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