Resolution of key issues awaited: Chinese power companies still facing stumbling blocks

ISLAMABAD: Chinese imported-coal fired power companies are reportedly still facing stumbling blocks in resolution of their key issues with government’s different organisations despite clear instructions of Prime Minister Shehbaz Sharif, well informed sources told Business Recorder.

The overdue amount of Chinese coal-fired power plants is over Rs 350 billion due to which they are unable to buy coal - a commodity whose price has increased manifold.

Prime Minister has also been informed that Port Qasim project is able to use RMB to buy coal to support Pakistan’s pressure due to a shortage of US dollars, requesting SBP to support Port Qasim to exchange RMB.

Only July 28, 2022, representatives of Chinese companies held a detailed meeting with Finance Minister and highlighted the following issues: (i) tariff adjustment issue;(ii) liquidity damages;(iii) opening of revolving account;(iv) provision of foreign exchange ; and (v) payment issues.

The meeting was attended by Minister for Power, Khurram Dastgir Khan, Minister for Planning, Development and Special Initiatives, Ahsan Iqbal, Minister of State for Finance, Dr. Aisha Ghaus Pasha, SAPM, Tariq Fatimi, SAPM, Zafar uddin Mahmood, Special Secretary Finance, Awais Manzur, Chairman NEPRA, Tauseef. H. Farooqi, CEO/ CFO, CPPA-G Rehan Akhtar, CEO China Power Hub Generation Company, Ren Lihui, Executive Assistant to CEO China Hub, Li Hualin, CEO, PQEPC, Guo Guang lin, CEO, HSR, Li Xin, VP HSR, Fan Jinde, Secretary PQEPS, Rong Hong Cheng and VP HSR, Li Hu.

According to sources, representatives of Chinese companies were of the view that upfront tariff policy 2014 must be followed.

The sources said, Finance Minister directed that monthly payments may be provided to Chinese IPPs to meet their operational cost and foreign exchange cover may be provided to the Chinese companies.

Chinese companies were given assurance that the issue of revolving account, pending since years will be resolved soon.

The meeting decided that Finance Minister and Power Minister will talk to the PM regarding liquidity damages issues.

The sources said that Chinese companies complained that they are not getting positive response from NEPRA with respect to tariff adjustments as their cost have increased manifold. Chinese companies have written several letters to power regulator in this regard which, according to them, remained unattended. These letters were also shared with Chinese embassy.

The meeting decided that Chinese companies would approach NEPRA and discuss tariff adjustment issues separately.

According to a tweet of Chinese ambassador to Pakistan Nong Rong “had a good discussions and in-depth exchanges with Chairman NEPRA. Committed to further explore the potential of cooperation in power sector and promote high quality development of CPEC.”

Chinese coal power plants have also requested Ministry of Energy and NEPRA to allow the additional cost of exchanging RMB to be passed through to CPPA-G.

Official documents available with Business Recorder reveal that the issues discussed in the meeting with Prime Minister have not been resolved.

China Power Hub Generation Company, in its recent letter of August 11, stated that its receivables have accumulated to a worrisome high-level, as on August 10, 2022, total receivables stood at whopping Rs 81.91 billing including overdue receivables of Rs 66.01 billion.

M/s China Huaneng of Sahiwal Coal Power Plant in its letter of August 7, 2022 said that more than 0.5 million tons of South African coal is stored at the port, waiting for clearance because no funds have been paid to the coal supplier.

CEO, Port Qasim Electric Power Company (PQEPC), Guo Guangling, in a letter to Minister for Finance stated that due to SBP constraining the use of foreign exchange based on USD foreign reserves, the company as an imported coal project, had to postpone the settlement process between it and coal contractor which has negative impact on the guarantee to consecutive coal supply.

The company maintains that as per Prime Minister’s direction on May 30, 2022 with Chinese enterprises and Minister for Finance Minister on July 29,2022 joint meeting both parties have evolved consensus that the capacity payment deductions shall be exempted due to fuel shortage incurred by huge overdue amount.

The sources said, during meeting with Chinese companies on July 28, 2022, Prime Minister maintained that when overdue payments are not being made to the power companies, how liquidity damages can be imposed.

Zhang Jun, Chairman Energy Investment of All-Pakistan Chinese Enterprises Association (APCEAP), in a letter to top government authorities, also accused the CCPA-G of breaching the provisions of agreements. Chinese power sector investors, saying huge amount of arrears, coupled with the accelerated depreciation of the PKR in recent years, has significantly reduced the nominal return on investment, which has exposed such Chinese enterprises to high audit risks in the future, besides greatly dampening the enthusiasm of other Chinese investors to invest in Pakistan.

Copyright Business Recorder, 2022