The federal government has again failed to make a decision on making around payments to the tune of Rs230 billion to Chinese power plants operating under the China-Pakistan Economic Corridor (CPEC) project and opening a bank account to save their investors from the vicious cycle of circular debt in the future.
Officials from the finance and energy ministries and CPEC Authority held a meeting on Monday, chaired by Finance Adviser Shaukat Tarin, but did not make a decision on the timing of clearing the outstanding dues and opening a revolving account, at least three participants told The Express Tribune.
Under the 2015 energy framework agreement, Pakistan is contractually bound to make timely payments to the Chinese power plants that were set up under the CPEC framework.
However, the Pakistani government has been violating this agreement since 2018 when the Chinese power plants started producing electricity.
“Until the problems faced by the existing [Chinese] investors are solved, no new Chinese investment is expected in Pakistan,” a senior government official said on the condition of anonymity.
So far, 10 energy projects worth $10 billion have been completed and four schemes costing $4.7 billion are under implementation.
Three months ago, Pakistan had again assured China to disburse $1.4 billion or Rs230 billion dues to the Chinese power plants. It had also committed to open a revolving fund that would have deposits equal to 21% of the power generation cost.
The latest assurance had been given from the platform of the 10th Joint Cooperation Committee of the CPEC that met in September.
China has hoped that the Pakistani side would get the article related to the revolving account on the ground soon.
On an average, about Rs5 billion to Rs6 billion every month is paid less to Chinese power producers against the billed amount, said a finance ministry official.
Khalid Mansoor, the special assistant to the prime minister on CPEC Affairs, while commenting on the outcome of the meeting, said the issue had been discussed with all stakeholders and it was moving in the right direction.
Mansoor has been looking after the CPEC affairs after the ouster of former chairman of the CPEC Authority, Lt Gen (retd) Asim Saleem Bajwa.
Since then, there has been no new chairman of the authority.
On November 30, the government advertised to hire a new chairperson on a management pay scale-I for a period of four years.
In September this year, Planning Minister Asad Umar had said that about $1.4 billion or Rs230 billion were payable to the Chinese power plants, hoping to find a solution “soon”.
The sources said that the latest meeting had been held on the instructions of Prime Minister Imran Khan, who had asked the authorities to fulfill the contractual obligations by opening a revolving fund.
During the meeting no one opposed opening the account but there was an issue about the ceiling of the sovereign guarantees to be issued by the finance ministry. The guarantees will be required to be issued against the money that will be borrowed to open the account and retain a balance sufficient to meet the contractual obligations.
There was also a problem about replenishing the revolving fund amid scarcity of the resources. The finance ministry has already allocated roughly Rs140 billion less in budget subsidies against the demand made by the energy ministry at the time of the budget.
The electricity recoveries remain around 20% less than the total power generation cost due to technical losses, theft and less recovery of electricity bills. At the time of the CPEC negotiations, China had secured commitments to cover these losses through opening a revolving account.
The circular debt — the unpaid amount to the power producers — has jumped from Rs1.15 trillion in June 2018 to Rs2.4 trillion in September 2021.
The sources said that the government wanted to clear some of the outstanding dues but it has not yet been able to find a pocket to repay the Chinese dues.
It would need around Rs100 billion to make the first payment, if the government follows the principle of clearing 40% of the outstanding dues agreed with non-CPEC power plants.
However, unlike the other IPPs who renegotiated their tariffs, the Chinese IPPs have refused to give up their due benefits.
The PTI government in the past had announced plans to renegotiate the power tariffs and return on equity given to Chinese investors of the energy projects.
It also wanted to seek a rollover of the $3 billion maturing Chinese repayments.
However, the minutes of the 10th JCC showed that Pakistan gave a commitment to maintain the tax and tariff policies stable.