Key Takeaways:
– Chinese firms have declined to renegotiate power purchase agreements (PPAs) with Pakistan.
– Pakistani authorities seek to extend debt repayment periods and reduce interest rates for CPEC projects.
– Chinese executives emphasize that debt restructuring decisions rest with Chinese banks, not the energy companies.
Shahbaz Rana, a senior economic reporter, has highlighted a critical development in the ongoing financial negotiations between Pakistan and Chinese firms involved in the China-Pakistan Economic Corridor (CPEC). As a Pakistani delegation heads to Beijing to seek concessions on energy project debts, Chinese companies have made it clear that they will not renegotiate the existing power purchase agreements (PPAs).
Representatives from three major Chinese companies firmly stated, “The matter of whether to restructure the energy debt should be decided between the Chinese banks and the Pakistani authorities.” They emphasized that the terms related to their profits and idle capacity payments, agreed upon under the PPAs, would not be renegotiated.
Despite the Pakistani government’s efforts, the Chinese executives from the Sahiwal Power Plant, Port Qasim Power Plant, and China-Hubco power plant, which collectively have a capacity of 3,960 megawatts under the CPEC, reiterated that reopening the PPAs is not an option.
Finance Minister Muhammad Aurangzeb is leading the Pakistani delegation to China, aiming to extend the repayment period of the debt incurred for nuclear power plants and CPEC energy projects. According to sources from the Finance Ministry, Pakistan has proposed an extension of up to eight years for energy debt repayments, conversion of the lending currency from the US dollar to the Chinese Yuan, and a reduction in interest rates. If these proposals are accepted, it could lead to a significant reduction in energy costs, potentially lowering prices by Rs6 to Rs7 per unit.
Despite the Pakistani government’s efforts, the Chinese executives from the Sahiwal Power Plant, Port Qasim Power Plant, and China-Hubco power plant, which collectively have a capacity of 3,960 megawatts under the CPEC, reiterated that reopening the PPAs is not an option. They pointed out that the “take or pay” condition of the PPAs is based on the 2014 energy policy and cannot be altered.
The Chinese representatives stressed that most countries buy electricity on a “take or pay” basis and that no foreign investor would be interested in setting up power plants in Pakistan without such guarantees. They also highlighted that ten years ago, Pakistan faced severe power outages, and even local investors were reluctant to invest in the energy sector.
The core issues contributing to high energy prices, according to the Chinese firms, are “uncontrolled and high line losses, theft, and low recoveries.” They asserted that their cost of electricity is still cheaper than that produced by government-owned power plants running on LNG.
The representatives further noted that due to Pakistan’s foreign currency crisis, they have been unable to transfer dividends back to their parent companies. “Even though we have been paid in the local currency, the money stayed in Pakistan and due to currency depreciation, our profits have been eroded,” said a senior executive.
As Pakistan seeks to restructure its energy debt, the Chinese companies have submitted a report on reducing energy costs in the country. However, they noted that there has been no development on this front. They cautioned that reopening old deals would not send a positive signal to Chinese investors and could hinder future investments.
In light of these developments, former interim commerce minister Gohar Ejaz announced that the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) would approach the Supreme Court to challenge the agreements with Independent Power Producers (IPPs). Ejaz stated that the FPCCI, representing Pakistan’s business community, would file a formal petition, describing the current situation as intolerable and affecting the right to life of every Pakistani.
