Coal shortage period: Chinese may be allowed to declare OFME

ISLAMABAD: The government is likely to allow Chinese coal power plants to declare coal shortage period as Other Force Majeure Event (OFME) in line with settlement done in the past with other IPPs facing fuel shortages, well-informed sources in PPIB told Business Recorder.

This understanding, sources said, will be part of minutes of next Energy Planning Expert Panel (EPEP) of China Pakistan Economic Corridor (CPEC) to review progress and ensure smooth and timely implementation of energy projects initiated under CPEC.

Both sides will observe that 17 power generation projects of 8020 MW based on imported coal, Thar coal, wind, solar and hydropower had been commissioned besides a flag-ship HVDC transmission line project (1000 MW) accruing investment of about $ 18.94 billion (including the coal mine). One project, Suki Kinari 884 MW hydropower project, of $ 1.707 billion was under construction.

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Three generation projects of 2124.7 MW (Gwadar, Kohala, Azad Pattan) based on coal and hydropower with an investment of about $ 4.157 billion are at an advance stage to achieve financial closing, whereas, four generation projects of 2020 MW (Oracle TharVI-1320 MW, Cacho Wind-50 MW, Western Wind-50 MW, Quaid-e-Azam Solar-600 MW) are at LoI stage.

Pakistan side gave briefing on opening of Revolving Account, as required under the provisions of Article-V of CPEC Agreement. It was apprised that to improve payments to CPEC IPPs, Government of Pakistan has opened and operationalised the Pakistan Energy Revolving Account (PERA) with State Bank of Pakistan (SBP) for all commissioned IPPs. The PERA has been adequately funded by Government of Pakistan.

Recently, China side put queries about: (i) how does Ministry of Finance provide security? (ii) what are the specific operational procedures in the case of PERA; (iii) regarding PERA, how to deal with the revision with the CPEC agreement? And (iv) what are the opinions of lender banks upon such amendments?

According to sources, Pakistan explained that: (i) Ministry of Finance will create budget allocation every year for payment to CPEC IPPs in addition to what CPPA-G is paying from its collection from Distribution Companies; (ii) without any demand from Banks or calling upon any Letter of Credit (LC), CPEC IPPs get funds directly to their accounts on monthly basis, through direct credit from State Bank of Pakistan; (iii) the procedure is better as through this procedure additional cash flow is generated for the CPEC IPPs. If lending banks accept this procedure, Pakistan side is ready to make required amendments in the Agreements; and (iv) China side should facilitate in getting recognition of PERA by lenders. Pakistan side further stated that opening of PERA will take care of the expected monthly shortfall which presently is much less than 22%. Therefore, the requirement for opening of Revolving Account is considered to be satisfied.

China side highly appreciated Pakistani side efforts in improving the tariff payments, however, current foreign exchange situation has led to severe difficulties regarding coal procurement. China side noted that in case power projects are unable to procure coal due to foreign exchange non-availability issues, no capacity payment be deducted for these projects by CPPA-G. Pakistan side appreciated the concern of CPEC IPPs and as an amicable solution, proposed that these IPPs may declare such period as Other Force Majeure Event (OFME) in line with settlement done in the past with other IPPs having fuel shortage issues. This option will require contractual modifications and approvals from appropriate forum for treatment of such event as OFME. China side appreciated the proposal and ensured to resolve the issue in consultation with CPEC IPPs.

Copyright Business Recorder, 2024