Chinese govt intervenes as $1.5b investment at stake

Published: 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

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.

Chinese investment in Punjab’s amusement park

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.”

Foreign investment: China prepared to invest in viable projects

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.

Chinese steel giant offers to pump $778m into PSM

“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.

Pakistan to hand over 2,281 acres of Gwadar’s free trade zone to Chinese

“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.

Trade corridor tops Chinese investment bonanza

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.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (31)

  • Woz Ahmed
    Nov 12, 2015 - 1:14AM

    Last week an American company bid 7.1 cents for an Indian solar project.

    We need the investment, but with 45% t&d loss, theft and non payment of bills, this project only benefits China and could do us more harm than good!Recommend

  • LS
    Nov 12, 2015 - 1:48AM

    Wow $14.15 per UNIT??? This is a loot. In India we are talking about reducing it to 7.5 Cents per unit or close to Rs. 5 from 27 Cents right now…

    Who wants to buy such expensive solar power??? Chinese are looting this nation and people are rejoicing… Recommend

  • Mahesh
    Nov 12, 2015 - 6:04AM

    I hope Pakistanis know what they are doing. Getting entangled with the dragon is not going to be good for future generations in the neighborhood.Recommend

  • hari
    Nov 12, 2015 - 6:38AM

    Master decides, slaves only follow!Recommend

  • hellboy
    Nov 12, 2015 - 8:21AM

    In India Chinese companies are offering the lowest 3.5Rs per unit and it may go down to as low as 1/2 Rs. in next 4/5 yrs. unit.How they are exploiting Pakistani people due to not having any rigorous bidding process.Recommend

  • DK
    Nov 12, 2015 - 9:28AM

    Dear Friends,….In India, the latest bid for the solar power project for a 500 MW is as low as Rs.4.63 per unit….pl keep ur eyes and ears open ….there appears to be something fundamentally wrong with ur power sector which offered such high rates for the solar power project….Recommend

  • rajesh
    Nov 12, 2015 - 9:28AM

    Chinese are taking over Pakistan like the East India Company slowly and steadily, and Pakistanis are not realizing this. Higher than mountain etc is just rhetoric by china to keep Pakistan away from actual brother India.Recommend

  • horntail
    Nov 12, 2015 - 9:42AM

    Pakistan has a higher project risk factor and lower currency value than India or China.. due to the risk factor the ROE or ROI is very high and hence the leveled tarrif is high.Recommend

  • ahsan
    Nov 12, 2015 - 9:58AM

    im amazed that indians at first mock us for chinese investment and now they are proud of géting lower bids from china, wnat a joke. complete double standards, anyhow, i know ver well electricity tarifs in india from my indian friend, it is still 45 percent higher than in pak, so keep quiet indians, its our matterRecommend

  • IndianDude
    Nov 12, 2015 - 10:13AM

    The international price of solar panel has been crashing due to over production by China and fall in oil price that has made solar power less competitive. The chinese power company has sold the project to Pakistan that has much higher cost for solar energy production, (meaning the solar panel price charged to Pakistan is much higher than the open international price) therefore it can not be profitable if the Pakistanis are to reduce the power tariff in line with the lower cost of energy due to falling oil price. Add to this, the double digit interest payment being charged to Pakistan on the ‘investment’ the Chinese are making under the CPEC.
    In short, Pakistan is being over charged and duped, more free real estate ‘gift’ to China is on cards to pay the master.Recommend

    Nov 12, 2015 - 10:16AM

    The country is being sold for pennies by the elite in the establishment and the political circles. The elite are amassing wealth extracted from the country and storing it in far away lands such as Dubai and London…..Waiting to enjoy their fruits of loot maar once the country implodes….under the massive strain of mis-governance……While the ordinary people are running from pillar to post to make ends meet…….May Allah guide us all. Recommend

  • Kalim
    Nov 12, 2015 - 10:35AM

    Power minister would be held responsible for this delay … As he knows that this is not feasible and very expensive project…. Recommend

  • Saud
    Nov 12, 2015 - 11:24AM

    In India, “The tariff for solar PV projects is fixed at Rs. 17.90 (USD 0.397)/kWh. Tariff for solar thermal projects is fixed Rs. 15.40 (USD 0.342/kWh)” -Source Wikipedia

  • Raj - USA
    Nov 12, 2015 - 11:25AM

    China alone is not to be blamed. China wants Pakistan to purchase the power generated at a higher price per unit because, they not only have to recover costs and earn a profit but also have to pay kickbacks. The price per unit factors in the kickbacks to be paid also. Media and analysts in Pakistan have been criticizing Ishaq Dar very bitterly for raising $500 million at 8.25% interest through 10 year bond issues. But, not one has questioned why Pakistan has guaranteed a minimum return of 18% for 45 years to China on $46 billion CPEC investments. Recommend

  • Pakistan
    Nov 12, 2015 - 12:02PM

    Apparently our Chinese friends are a step ahead of Mian Brothers. The Brothers have virtually indicated through a number of such misadventures that this is their last stint. We hope it is.Recommend

  • JSM
    Nov 12, 2015 - 12:35PM

    Solar rates in India touched a new low in the tender for a 500-Mw solar park in Andhra Pradesh issued by the Ministry of New and Renewable Energy (MNRE). US-based SunEdison won the bidding round by quoting Rs 4.63 a unit. The rate is from an American company and not China. See the following link:

    Draw your own conclusions.Recommend

  • U-turn
    Nov 12, 2015 - 1:18PM

    Its funny how everyone is quoting how cheap India is setting up solar energy. What they fail to understand is that the price they are quoting is Indian rupees and not Pakistani rupees. Perhaps a one second google search would reveal that the two currencies are not equal in value. Recommend

  • JSM
    Nov 12, 2015 - 2:39PM

    Indian solar power rate works out to US$0.07 (7 cents) per unit.Recommend

  • Raj
    Nov 12, 2015 - 2:47PM

    China is known to extract the maximum from those countries where it is investing. Africans simply hate china because, of such policies. Pakistan should negotiate for a mutually beneficial tariff and of course, if there is no profitt, why should the china invest and if there is no investment how can pakistan develop. So, the solution is lying in the middle and a tariff rate whihc is mutually beneficial should be fixed. Unless this si done urgently chinese will react very angrily. Just take care.Recommend

  • Khan
    Nov 12, 2015 - 2:51PM

    Dear indians, these prices are in usd, you’re quoting indian ruppee. The indian project bid is for the equivalent of 7.5 cents. The cost of building in the middle of undeveloped cholistan desert is high. Recommend

  • whatever
    Nov 12, 2015 - 2:53PM

    so what Pakistanis have large heart they must save their iron friend profit. Even I suggest they should double the payment for chinese bill after all CPEC is once a lifetime oppurtinity for Pakistanis. BTW I paid $ 10 as electricity bill in India for the last month.Recommend

  • Saad
    Nov 12, 2015 - 3:04PM

    Bye bye CPEC Recommend

  • Np
    Nov 12, 2015 - 3:22PM

    @U-turn: 2 Indian rupee equals 1.6 Pakistani rupee. So RS. 5 per megawatt in Indian rupees is equal to RS. 8 in Pakistani rupee. By charging you RS. W4′ China is trying to gouge you. Recommend

  • Ali
    Nov 12, 2015 - 3:41PM

    We need that investment in current situation butt government have to do somthing like in long term we could change the tarifes or short term contracts after the investment!Recommend

  • Hari Om
    Nov 12, 2015 - 4:34PM

    “Iron Brother” China leverages Pakistan’s “Deeper than Indian Ocean” dependence to ensure Chinese companies can charge “Higher than Himalayas” price in order for China and her corporate entities milking “Sweeter than Honey” profits from Pakistan.Recommend

  • cautious
    Nov 12, 2015 - 7:04PM

    Why isn’t the rate of return negotiated/finalized during the bidding process? Why isn’t the project subject to bidding in the first place? Another CPEC “Chinese only project”?Recommend

  • Shakti
    Nov 12, 2015 - 8:33PM

    Fair comment. Even if you adjust for currency exchange rates, it is still 50% higher.Recommend

  • JSM
    Nov 12, 2015 - 8:38PM

    Has the rate been finalised after the above debate?Recommend

  • Tyggar
    Nov 12, 2015 - 8:53PM

    You really cannot negotiate price when China has you by your cojonesRecommend

  • Propakistan
    Nov 12, 2015 - 9:38PM

    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!Recommend

  • Nov 13, 2015 - 12:39PM

    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. Recommend

More in Business