Purchase of coal: CPHGC seeks Rs167bn from govt

ISLAMABAD: China Power Hub Generation Company (Pvt) Ltd (CPHGC) has sought Rs167 billion from the government to procure coal for five months (August-December 2022) from South Africa as coal supply from Afghanistan is considerably less than the agreed quantity.

CPHGC is a 2x660-MW coal fired power plant with a dedicated coal import jetty located in Hub Balochistan. The $2 billion IPP is a priority CPEC project that is supplying electricity to millions of Pakistani households.

The project achieved its Commercial Operations Date (COD) on August 17, 2019. CPHGC has generated around 22 billion kWh of electricity till July 31, 2022.

The power company, in a letter to CEO CPPA-G sought attention to its various correspondences with CPPA-G especially the last letter dated July 2, 2022 wherein the company, as per the directions of the Government of Pakistan, has shared its plan and progress for procurement of coal from Afghanistan through a local supplier and sought confirmation from CPPA-G along with repayment schedule for at least 30 days to fulfil the cash requirements of the Company but unfortunately, neither the confirmation has been given nor has the repayment schedule been provided. Moreover, the supplier is also unable to supply coal as per agreed quantity of 100,000 tons/ month and could manage to deliver only 2,200 tons till July 31, 2022.

According to the company, keeping in view the facts, it is evident that the coal trader has failed to supply coal from Afghanistan as per the agreed quantity, despite his firm commitment.

The shortfall of supply quantity is too high and has disrupted inventory sourcing plan as per the agreement - the scheduled supply was 100,000 tons in 30 days and the company is running low on inventory as per that plan. Therefore, in order to overcome this shortfall (due to insufficient supply of coal from Afghanistan) the company is left with no option but to procure imported coal to fulfil the demand and maintain the inventory.

Non-availability of forex: CPHGC lands in hot water as SBP stops payments

In the light of current scenario and as has already been emphasized in frequent communications, the power company has reiterated that it has to procure on an average 242,000 tons of coal from South Africa and this is in addition to the planned quantity of Afghan/ locally procured coal, starting from August, 2022, till December, 2022, in order to maintain its coal inventory at a minimum level to cater the average load factor of 69%. Each shipment is estimated to cost up to Rs99,000 per ton including duties and taxes at the exchange rate of Rs230 per US dollar.

The company has sought an amount of Rs167 billion for procurement of coal till December 2022 based on the APl-4 value of $350 per ton, and to make payment for 05 shipments in total, in the month of August 2022, which includes 02 shipments on open credit (already consumed in previous months) and 03 shipments on LCs (to be delivered in the month of August, 2022). This amount accumulates to the fund’s requirement of around Rs30.17 billion for coal payments and Rs5.90 billion for other operating cash requirements (it includes the payments of Rs3.90 billion relating to CTS & Plant O&M fees which have been overdue for more than 06 months) in August 2022.

The company has also to make payment of Rs19.90 billion for debt servicing before 05th October, 2022. This has been communicated to CPPA-G that the Company in no circumstance, can afford to default on any such payments. In contrast, recovery from CPPA-G is substantially low and it has received only Rs1.15 billion till date in the month of August 2022.

“Any further delays in allocation of the required funds can result in default of the Company, under its obligation for LCs/ Open Credit settlement & debt servicing,” said CFO CPHGC.

Furthermore, the company’s receivables have accumulated to worrisome high level and as of August 10, 2022, total receivables of the Company stood at whopping Rs81.91 billion including overdue receivables of Rs66.01 billion.

“It is highly likely that the Company’s availability will be affected under its Power Purchase Agreement (PPA) with CPPA-G, if such pattern of payments is not accorded to the cash requirements. Such events are never desirable by counterparts and should be avoided at all costs as this will also severely hamper the Government of Pakistan’s vision to provide affordable electricity nationwide,” he maintained.

CPHGC has urged the government to immediately release funds from its overdue receivables under various components, so that it can ensure smooth operations, avoid any contractual defaults and fulfil its lenders obligations in a timely manner

CEO CPPA-G has been requested to confirm imported coal procurement plan, along with the assurance of the availability of sufficient foreign (USD) and local currency reserves with SBP/ Commercial Banks to release payments (foreign/ local) as per demand of the Company latest by August 12, 2022 (today). In the absence of confirmation from CPPA-G, the power company will have no other option but to proceed with its plan.

Copyright Business Recorder, 2022