Chinese govt intervenes as $1.5b investment at stake

Warns project will not be implemented if Pakistan presses ahead with tariff cut

Zafar Bhutta November 11, 2015
Work on the first phase of 300MW is progressing smoothly and it is expected to connect to the national grid with electricity production by the end of this year. PHOTO: FILE


The Chinese government has stepped in to save the $1.5-billion investment being made by Zonergy Company in developing a 900-megawatt solar power project, which is threatened by a proposed downward revision in the tariff.

Any move to reduce the tariff - from 14.15 cents to 9.25 cents per unit from January 2016 - would have a disastrous impact on Chinese enterprises working under the China-Pakistan Economic Corridor (CPEC) programme, putting the investment cost at high risk, it said.

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The Chinese Secretariat of the CPEC Department of International Cooperation, in a communication to the Pakistan CPEC Secretariat on November 6, also expressed serious concern over the delay in issuance of a consent letter by the Central Power Purchasing Agency to Zonergy.

It urged Pakistan to treat the power project, being constructed in Punjab, as part of the current tariff policy.

“If the tariff is reduced anyhow, the project will not be implemented, which will have a disastrous impact on Chinese enterprises,” it said. “If the government of Pakistan insists on reducing the tariff, it will greatly affect investment confidence and enthusiasm of Chinese enterprises.”

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The Chinese secretariat recalled that under the CPEC framework, Zonergy was investing and constructing the solar power plant in Pakistan. “Since the project had been listed among early harvest projects in the CPEC in August 2014, it receives the high attention of the two countries.”

Work on the first phase of 300MW is progressing smoothly and it is expected to connect to the national grid with electricity production by the end of this year. At present, all tariff application materials for the second 300MW phase have been finalised.

According to requirements of the law, the National Electric Power Regulatory Authority (Nepra) will give its approval to the tariff after receiving all application materials within 10 days.

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“However, the power purchase consent letter has not yet been issued by the Central Power Purchasing Agency (CPPA). The CPPA has not approved Zonergy’s application more than two months after the submission. This has put Zonergy’s project at high risk of facing a low tariff,” the Chinese secretariat said.

It pointed out that during the international solar energy trade forum on October 13 in Islamabad, Pakistan’s water and power minister announced that the government had planned to halt tariff approval under the current tariff policy and continued to develop solar energy until photovoltaic tariff and transmission problems were solved.

The current tariff policy is valid until the end of December 2015. Zonergy has already started equipment procurement and staff recruitment based on requirements of the Pakistan government.

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“The Chinese Secretariat of the CPEC kindly requests the corresponding Pakistan secretariat to pay high attention to the following matters and coordinate for a better solution,” the Chinese side said.

It asked Pakistan to issue the power purchase consent letter for the second 300MW phase under the current tariff policy. It sought Pakistan’s coordination in order to step up the approval process for the third 300MW interconnection study.

Last week, representatives of Zonergy met Punjab Chief Minister Shahbaz Sharif and urged him to play his role in resolving the issues.

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They suggested that a tariff reduction would force them to roll back their investment plans as it would not be feasible to work on the project.

They said they had a financial plan based on the existing tariff and the reduction would make their investment plans unfeasible. Officials say Prime Minister Nawaz Sharif should play a role in addressing this problem.

Published in The Express Tribune, November 12th, 2015.

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bimal william | 6 years ago | Reply Your PM only said our relation is sweeter than honey. I hope Pakistanis do not catch diabetes.China policy is imperialistic in nature.Thanks to your current govt.They will accept any price offered by China.Ultimately Pak China Bhai Bhai.If big brother wants more, you can give them. After all younger brother has very big heart.
Propakistan | 6 years ago | Reply Ludicrous. My fellow Pakistanis ... WAKE UP! Current solar prices are well documented on the web. India's or any other countyr's prices converted to USD or PKR is a simple matter for anyone willing to apply their brain to understand that this is highway robbery at the hands of the Chinese. They will sell us overpriced solar and outdated coal power plants and we will bear the burden for their financial success for decades to come. Investment should be done giving a fair or even an attractive rate of return. ROE at current rates would translate to approx 30% against government policy rate of 16% for renewable IPPs hedged in USD terms. Infrastructure projects world over are executed at ROE of 10 to 12% on higher side. We are in many ways a country lacking stability and due to country risks an ROE of 16% may be required to attract investment, though frankly even this is only the case due to our corrupt leaders who secure their two pennies by selling the whole country's future. Well priced energy is central to our development needs. Power at any prices will make our industries uncompetitive. We are well advised, for our own sake, to take seriously the implications of this ludicrously priced investment. Pakistan is gifted with plenty of sunshine and can realize cost effective solar power that can lay the foundation stones for a prosperous future. Zonergy has all ready screwed us for 300mw. Now the Chinese government would have us bend over for another round!
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